November 8, 2022Marketing

#16: Four Ways to Develop Your Marketing Budget

So, what's your marketing budget?

I'm curious—how did you come up with it?

Today, I learned about the 4 ways you can develop the marketing budget for your business. Here's a quick rundown.

1. Percentage of Sales

You allocate 2 to 10% of your gross sales—either from the previous year or the forecasted year—to your marketing efforts. This is one of the traditional ways to do it.

Pro: You can manage your budget better and make sure you're not spending more than you're making.

Con: If you spend the same marketing budget, get the same sales results, and do the same thing over and over again, you may be playing safe and not get much growth over the years.

2. The Affordable Method

The very famous method (heard it in so many meetings) is to spend whatever is left of your budget on marketing.

Pro: You won't spend much on marketing and have more budget distributed to the other functions of the business.

Con: You get what you pay for.

3. Objective and Task Method

Instead of starting with a specific sum of money and figuring out what to do with it, you associate activity and outcome. You reverse-engineer the outcome you desire (e.g. $10,000 MRR) and consider the cost of marketing activities that will help you get there.

Pro: There's a clear goal in mind to start with and you have an idea of the tactics you'll need to invest in.

Con: You can't always accurately forecast CPCs, ROAS, and other metrics.

4. Competitive Parity Method

As the name suggests, you try to work out how much your competitor is spending on marketing and you match (or exceed) that to compete and achieve similar or even more success.

Pro: You can actively defend your market position.

Con: Of course, your competitor won't hand your their financial statements on a silver platter—you'll have to estimate that yourself (which brings the issue of inaccuracy). Plus, following competitors blindly can be dangerous as there may be internal factors influencing their marketing spend (e.g. overspending on marketing to prepare for an acquisition deal).

Reference: Digital Marketing Institute

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Hi, and thanks for reading! I'm Kishly, a cheerleader of creatives and copywriter turned marketing strategist. Bookmark this blog to read my daily atomic essays on marketing, compassionate productivity, creative living, and lifelong learning. Or subscribe to Process, my weekly-ish newsletter for young adults (and the young at heart) in pursuit of wisdom and wonder. ✨

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