Building a successful business almost always involves successfully marketing your product, service, or yourself.
Far too many companies are spending less on their customer relationship efforts, or on the contrary they are spending too much trying to reach a specific target audience. For example, if your target audience is older consumers, the marketing money spent on social media campaigns may not be effective in reaching them.
One of the best ways to make sure your marketing dollars are well spent is to develop a comprehensive marketing strategy and come up with a solid marketing plan. Following a well-defined plan will help ensure that you are spending your marketing funds wisely and appropriately.
A marketing plan should include everything from understanding your target market and your competitive position in that market, to how you intend to reach that market (your tactics) and how to differentiate yourself from your competition in order to make a sale.
The marketing budget for your small business is a critical part of your marketing plan. It will outline the costs of how you are going to achieve your marketing goals within a certain time frame.
Here are the six steps to building a marketing budget as part of your marketing plan:
1. Know your sales funnel
Building an effective marketing budget requires a thorough analysis of your sales funnel, where you’ll track results throughout the revenue cycle, from lead to customer. Collecting this data from your marketing automation software or CRM makes this process relatively straightforward:
- How many site visits do you have per month?
- How many leads do you generate per month?
- How many leads are converted to qualified leads for sales (SQL)?
- What is the cost of generating these SQLs? (e.g. website development, outsourced content creation, Pay-Per-Click, time spent in marketing and / or sales to nurture these leads, etc.)
- How many leads turn into opportunities?
- How many of these opportunities are concluded in the form of new transactions?
- What is the typical value / income of a new transaction?
2. Know your operational costs
Next, you will need to understand your operational costs:
- How much would it cost in time and manpower to provide contacts?
- Does your internal staff have the bandwidth required for this job or will you need additional staffing as well as costs related to employee benefits?
- How much would it cost if you hired a referral agency? (The upfront costs will be higher than doing it in-house, but the results and return on investment might justify the additional expense.)
- What are the potential costs of your inaction? (Be sure to calculate the rapid changes in the market and whether you can afford to reduce your market share in the face of current and future competition.)
3. Define your marketing budget based on business objectives
Determine your business goals by asking yourself the following questions:
- What are your business goals for the quarter?
- What are your business goals for the year? How about three years?
- How many of those contacts need to get passed through to your sales team, based on their close rates, to have enough revenue impact to meet those goals?
It is common for small businesses with revenues of less than $ 5 million to allocate 7-8% of their revenues to marketing, spreading it among the costs of brand development such as websites, blogs, sales materials and promotional costs, as well as campaigns, advertising and events. Never base your marketing budget just on what’s left over after covering all other expenses.
4. Position marketing as an investment, not a cost
Most often, marketing budgets come from the top of the organization where the marketing teams are seen as cost centers and the marketing budget is seen as an expense.
With this thinking, organizations will look at last year’s marketing spend and decide where they want to spend more or less. Instead, your marketing budget should be treated as an investment, something that will deliver a quantifiable and verifiable ROI over time.
5. Consider your stage of growth
The definition of your marketing budget will also be influenced by whether your organization is in growth mode or in planning mode.
Mode of growth. If you are in growth mode, you will need to generate top notch income at a faster rate, so you may want to consider larger investments in more fast-earning marketing techniques.
Take an iterative approach to further develop your website, so that your website can become a central marketing hub rather than an online brochure. Iterative development and maintenance can consume a significant chunk of your budget, but the rewards are well worth it.
Planning mode. If you’re more in a planning mode, where steady growth is more welcome than peaks in income, you’ll want to consider a longer-term marketing game through acquired media. This includes generating and posting great inbound content and potentially getting new business over time.
6. Understand current and future trends
An understanding of current and future marketing trends can also help you navigate the budgeting process.
When setting a marketing budget, it’s important that marketers embrace and apply different technologies to their marketing stack to keep pace with changes in the industry. If you’re using email in your marketing strategy, take advantage of features like contact info, email tracking, and email scheduling. (To verify 6 email marketing tips that will make a real difference for helpful tips.)
Many times companies react to the latest “marketing” idea without validation or research that they will successfully reach their target market. A marketing budget should include traditional approaches to the market as well as the emerging social media market. Focus on your audience, what form of communication they’re likely to respond to, and what message you’re sending them.
Read all Articles by Michael Evans on AllBusiness.com.