7 factors to consider when calculating your marketing budget

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Marketing Budget Calculation | iTMunch

There are thousands of competitors out there that claim to offer the ‘best’ product or service in the industry. How do you stand out from the crowd? A concrete marketing plan is one of many answers. For this, you need to carry out a marketing budget calculation to know what your annual spend on marketing is going to be. Remember that no marketing plan is complete until you set a budget for it.

The 2019-2020 CMO Spend Survey indicated that 9.8% of the firm’s revenue for the average marketing expense. The survey also found that about 61% of Chief Marketing Officers participated expect to increase their marketing budget in 2020 [1].

There are a lot of factors you need to consider while calculating your marketing budget. Before we talk about what those factors are, we would like you to have something that’ll help you in creating your marketing plan. Here’s a free, simple and sophisticated marketing plan template in the form of an excel sheet (with formulae for your convenience) you can use for your marketing budget calculation. Download and use it to plan and allocate your marketing budget!

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Now, let’s have a look at the 7 factors to consider while determining your marketing budget:

1. Revenue

Your revenue is a crucial factor on which your marketing spend ability depends on. As a rule of thumb, small and medium businesses tend to spend from 5 to 10% of the revenue generated, depending on how aggressive their marketing plan is. Now, if there is a sales team on board, that amount goes up to 13 to 15% of the revenue. Usually, B2B companies need to spend more on their marketing efforts as compared to B2B companies. According to the CMO Survey mentioned above, B2C companies keep 15.6% of the revenue on marketing activities while B2B companies spend 8.6% of the revenue [2].

2. Reach

Are you marketing locally? Can your product or service be availed nationally? Do you plan to go global? There will be a huge monetary difference between marketing a product locally vs internationally. Depending on the demographics you are targeting, you might need to have to adopt more or less marketing techniques which might increase or decrease your budget.

3. Brand awareness

Your marketing budget calculation depends immensely on how well known your brand is. Despite pricing and quality differences, consumers show overwhelming bias or preference towards high awareness brands. Studies have found a strong and positive correlation between brand awareness, brand equity and perceived quality [3]. 42% of the Amazon ad spend in the Q3 of FY 2019-20 was on brand awareness [4].

If you are a new player in the market that needs to establish its credibility, the cost could be high. You have to invest time, efforts and money in building trust in your target audience and educating them about your product. However, If you are a well-established company in your industry that has a loyal customer base, your marketing spend could be much lesser. 

SEE ALSO: A Complete Guide to B2B Account-Based Marketing

4. Marketing Channels

The channels you use to broadcast and showcase your product is one of the cardinal factors to consider while conducting marketing budget calculations. Few marketing methods whose costing you’d like to calculate and add to your marketing budget plan are:

A. Traditional Marketing

Though traditional marketing techniques work, there are two drawbacks to them. First, they are expensive and second, there is no way to know how many people you’ve been able to reach. According to a survey by Campaign Monitor that analysed 1000 businesses, 19% of the businesses said that they would be cutting back on the traditional marketing spend [5]. However, if you believe traditional marketing tools and techniques might be fruitful for you, following are a few things who’s costs you might want to take into consideration: 

  • Newspaper Ads
  • Pamphlets
  • Flyers 
  • Referral programs
  • TV Advertising
  • Radio Advertising
  • Public events

B. Digital Marketing

Important things to consider in digital marketing while calculating marketing budget | iTMunch

Marketers and businesses believe that digital marketing is the future. According to Forrester, digital media investments in the United States, including display advertising, search marketing, email marketing and videos, will near $119 billion by 2021 [6]. 

The CMO Spend Survey additionally found that about 26% of marketing budgets were on paid media and digital paid media accounted for 16% of total marketing budgets [7].

When going digital, the first and foremost thing to get in place is an impressive website. According to research, 64% of small businesses have invested in a website while about 35% of small businesses that don’t have a website believe they are too small to have one [8]. A survey by Brightlocal suggests that most consumers are inclined towards local businesses that own a website [9]. 

So, if you are own a small business, it is advisable to set aside a part of your marketing budget to create your website. Once you have your website in place, the following are the verticals of digital marketing you must invest in.

1. Blogs and Content Marketing

Content is one of the best ways to educate and inform consumers about your product. A report by the Content Marketing Institute says 89% of the B2B marketers use their company’s blog or website for content distribution [10]. You might choose to write your own content, get a full-time in-house writer for your company or hire a freelancer who could look after your content needs.

2. Social media marketing 

Social media is the most actively used platform for building brand awareness. In the Campaign Monitor survey, 73% stated that they wish to invest more than they already do in social media marketing [11]. Mostly, businesses chose social media platforms like Facebook, Twitter, Instagram, Google+, Reddit etc. for creating a online presence.

SEE ALSO: Get started with Instagram for business

3. Influencer marketing 

Small, medium and large-scale businesses are turning towards influencer marketing and setting aside good sums of money for the same. Using the trust, relationships and credibility of social media or YouTube influencers, you can shed light on your products and services. It also increases your brand awareness, enriches your wholesome content strategy and is helpful in reaching out to your target audience.

4. Search Engine Optimization

Search engine optimization or SEO is the process of organically improving the quality and quantity of website traffic by enhancing the visibility of your website to the users and search engines bots. The two types of SEO are on-page and off-page. SEO leads to better user experience on your website or app. Studies have shown an average close rate of 14.6% achieved through SEO leads [12]. Once you have your website and content in place, it is advisable to take a deep dive into your SEO efforts.

5. Email Marketing

Emails are a (sort of) personal way to reach and communicate with your audience. According to Statista, email users globally mounted 3.9 billion in 2019. This figure is expected to cross 4.3 billion by 2023 [13]. Additionally, 9 out of 10 marketers use email marketing as a way to distribute their content organically [14]. Even when it comes to the return on investment (ROI), for every $1 spent on email marketing, an average return of $42 can be expected [15]. So, if you have the bandwidth of adding an email marketing campaigns to your marketing plan, go ahead.

6. Search Advertising

Online ads are more reliable than you might think. 75% of online users have said that paid search ads have made it easier for them to find information [16]. It might not take you by surprise that when it comes to the search market, Google dominates the market share with 91.54%. It is followed by Bing at only 2.18% [17]. But again, it isn’t just about who leads the market but who helps businesses in generating revenue. Google takes the lead here as well with the average conversion rate for Google Ads being 3.75%, while the same for Bing is 2.94% [18].

7. Display Network Advertising

Nothing grabs your audience’s attention like visuals. Display ads offer brands visibility and brand awareness. Search ads appear when a person types in a query in the search box that is related to your product and hits enter. Display ads can be referred to as banner ads. The benefit with display ads is that you can go all creative and use audio, video and graphics to attract users’ attention. 

The Google Display Network consists of more than 2 million websites and reaches 90% of the customers online. It is recommended to set a part of your marketing budget for display ads in your calculations. Facebook Ads, LinkedIn Ads and Instagram Ads are other few types of display ads you can consider investing in.

8. Affiliate Programmes

Affiliate marketing is a form of performance-based or commission-based marketing. Through affiliate programs, you create a network of affiliates that talk positively about your product and attach a link to your landing page. You pay these affiliates on the basis of visitors or customers brought to your landing page by their marketing efforts.

5. Aggressiveness

How much growth are you expecting in the next year? How prepared are to invest in marketing? Are you trying to enter and conquer new markets? Do you plan to create brand awareness by subtle marketing or want to remind your audience of your product frequently? Depending on your answers to such questions, your marketing budget will vary. 

6. Personnel

According to Campaign Monitor, 56.9% of the startups have a dedicated marketing team. It also found that 20.8% of the businesses analyzed had at least one person dedicated to marketing and 15.3% have the founder or the owner as its sole marketer. Additionally, they found that 4.8% hired a third-party agency and 2.2% relied on freelancers for their marketing needs [19].

If you have recently set up a business, chances are you plan to carry out all your marketing activities single-handedly. But if you are a start-up and planning to expand, you might want to hire a marketing executive or a team to execute your marketing plan. When you hire a team (or even one marketing executive), you want to consider their monetary compensation in your marketing budget plan as well.

7. Infrastructure

When you hire a team to take on your marketing activities, you need to set up workstations for them. You also need to purchase subscriptions of relevant software that help in content creation and its distribution. For example, Adobe Photoshop, Illustrator, etc. This is another factor you need to consider when you calculate your marketing budget.

While creating your marketing plan, don’t just create a marketing strategy that simply puts your product out there. Try to focus on highlighting the differentiating factor of your product. Make your target audience see you as an expert in the industry. Make sure that you take care of all the above-mentioned factors while calculating marketing budget and you will have a bulletproof marketing plan in front of you.

Sources

[1] [2] [7] The CMO Survey (2020) “Special Covid-19 Edition: June 2020” [Online] Available from: https://cmosurvey.org/results/ [Accessed July 2020]

[3] Academia (2018) “Determinants of Brand Equity in two Wheeler Industry A Study with Special Reference to Hero Motocorp in Mysuru Market” [Online] Available from:  https://www.academia.edu/37833624/Determinants_of_Brand_Equity_in_two_Wheeler_Industry_A_Study_with_Special_Reference_to_Hero_Motocorp_in_Mysuru_Market [Accessed July 2020]

[4] Tinuiti (2019) “Amazon Ads Benchmark Report Q3 2019” [Online] Available from: https://tinuiti.com/content/guides/amazon-ads-benchmark-report-q3-2019/ [Accessed July 2020]

[5] [11] [19] Campaign Monitor (2019) “The State of Small Business Marketing in 2019” [Online] Available from: https://www.campaignmonitor.com/resources/guides/the-state-of-small-business-marketing/ [Accessed July 2020]

[6] Forrester (2017) “US Digital Marketing Forecast: 2016 To 2021” [Online] Available from: https://www.forrester.com/report/US+Digital+Marketing+Forecast+2016+To+2021/-/E-RES137095 [Accessed July 2020]

[8] Fundera (2019) “Small Business Marketing Statistics and Trends (2020)” [Online] Available from: https://www.fundera.com/resources/small-business-marketing-statistics [Accessed July 2020]

[9] BrightLocal (2016) “Gender vs Age – What Different Consumer Groups REALLY Want from Local Business Websites” [Online] Available from: https://www.brightlocal.com/research/gender-age-what-consumers-want-from-local-business-websites/ [Accessed July 2020]

[10] Content Marketing Institute (2019) “2020 B2B Content Marketing: What the Successful Do [New Research]” [Online] Available from: https://contentmarketinginstitute.com/2019/10/success-differentiators-b2b-research/ [Accessed July 2020]

[12] 99 Firms “SEO Statistics” [Online] Available from: https://99firms.com/blog/seo-statistics/#gref [Accessed July 2020]

[13] J. Clement (2020) “Number of e-mail users worldwide 2017-2024” Statista [Online] Available from: https://www.statista.com/statistics/255080/number-of-e-mail-users-worldwide/ [Accessed July 2020]

[14] Content Marketing Institute (2020) “B2B Content Marketing 2020 – Benchmarks, Budget and Trends – North America)” [Online] Available from: https://contentmarketinginstitute.com/wp-content/uploads/2019/10/2020_B2B_Research_Final.pdf [Accessed July 2020]

[15] The DMA (2019) “Marketer email tracker 2019” [Online] Available from: https://dma.org.uk/uploads/misc/marketers-email-tracker-2019.pdf [Accessed July 2020]

[16] Clutch (2018) “Search Engine Marketing: Why People Click on Paid Search Ads” [Online] Available from: https://clutch.co/seo-firms/resources/search-engine-marketing-why-people-click-paid-search-ads [Accessed July 2020]

[17] Statcounter GlobalStats “Search Engine Market Share Worldwide – June 2020” [Online] Available from: https://gs.statcounter.com/search-engine-market-share#monthly-201712-201812-bar [Accessed July 2020]

[18] WordStream (2020) “Bing Ads Benchmarks for YOUR Industry” [Online] Available from: https://www.wordstream.com/blog/ws/2017/11/06/bing-ads-performance-benchmarks [Accessed July 2020]

SEE ALSO: Effective B2B Content Marketing Strategies

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