About Entrepreneurship Best Practices: Defining Your Marketing Budget


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Coming up with that first marketing budget is certainly no easy task. You have to decide how best to reach your customer base, how to track expenditures, and most importantly, you have to understand the nuances involved in determining your costs of customer acquisition and what role these costs play in increasing your marketing ROI (return on investment). However, since sales and marketing are one and the same, you know that a marketing budget and clearly defined strategy are prerequisites to success and a vital part of increasing your market share. To help guide you along, we’ll review the process involved in coming with a marketing budget. We’ll also outline the steps involved in tracking the performance of your separate marketing strategies in order to dial into the most cost-efficient way to produce qualified leads. Suffice it to say, a marketing budget may seem like an involved process, but in reality, it really is pretty straightforward.

Defining your market

The first and most important step in coming up with that marketing budget is to define your market and its customers. Understanding your market and its makeup is a pivotal part of defining how best to reach your customer base. For instance, a B2B (business to business) market is entirely different from a B2C (business to consumer) market. B2B sales and marketing is predicated on meeting customers at conferences, trade shows and or exhibits. This is often due to the industry’s size, where distances from vendor to supplier don’t allow either to meet on a consistent basis. B2C sales and marketing is focused on competing against similar branded competitors within diverse, and often smaller, markets. This increased competition provides customers with plenty of choices as to when and where they make a purchase. You might view B2C sales involving those retailers all trying to increase market share within the same customer segments.

Start by defining your market and your business model. Focus on answering questions concerning how best to reach your customers. Understand that not all markets are the same, and therefore, not all customers behave the same way. As such, there are different buying habits and different purchase decisions that customers make.

Putting together your marketing budget

Our marketing budget will be based on a B2B entity that has decided to combine several inbound and outbound marketing strategies in order to reach its customers. Inbound marketing strategies include the company’s website, blog, online PPC (pay-per-click) advertising campaigns and any and all marketing strategies geared towards driving online search traffic to the company’s site. Outbound strategies are conventional marketing and advertising approaches that include print, radio, magazine, billboard, TV advertisements as well as trade shows and conferences. The following budget summarizes the company’s expenditures on its marketing strategies for its first quarter. The company has itemized its expenditures by month and by marketing strategy. A total is provided in the last column for the company’s entire first quarter. For instance, the company spent $500.00 in January, February and March on content writers for its blog. The total for the quarter is therefore $1,500.00.

Marketing Budget

January

February

March

First Quarter Marketing Expenditures

Website

 $750.00

 $500.00

 $0.00  

 $1,250.00

Blog  

 $500.00

 $500.00

 $500.00

 $1,500.00

Website call tracking

 $750.00

 $750.00

 $750.00

 $2,250.00

Online PPC campaigns

 $5,000.00

 $0.00  

 $5,000.00

 $10,000.00

SMS campaigns

 $0.00  

 $2,500.00

 $0.00  

 $2,500.00

Print and magazine advertisements

 $2,500.00

 $0.00  

 $2,500.00

 $5,000.00

Trade shows, exhibits and conferences

 $15,000.00

 $0.00

 $15,000.00

 $30,000.00

Catalogs and brochures

 $500.00

 $500.00

 $750.00

 $1,750.00

Sales negotiation training

 $2,000.00

 $0.00

 $2,000.00

 $4,000.00


Marketing spent

 $27,000.00

 $4,750.00

 $26,500.00

 $58,250.00

Sales totals

 $475,000.00

 $477,000.00

 $481,000.00

 $1,433,000.00

Marketing as a percentage of sales

6%

1%

6%

4%


Calculating marketing expenditures as a percentage of sales

Every marketing budget must be able to express its marketing expenditures as a percentage of its sales totals, or revenue. This is done by taking the marketing spent by month and dividing it by the sales totals for that particular month. For instance, in January the company spent $27,000.00 on its marketing strategies and its sales totals were $475,000.00. Its marketing as a percentage of its sales is simply this $27,000.00 divided by $475,000.00 or 6%. For the entire quarter, the company’s marketing as a percentage of its sales was 4% based on taking $58,250.00 spent on marketing and dividing it by $1,433,000.00 in sales for the quarter.

Tracking the costs of lead generation and customer acquisition

Most of these aforementioned marketing strategies will be responsible for bringing in a certain number of leads. Some will generate more than others. It’s essential that these leads be tracked back to their source in order to determine the company’s costs of customer acquisition. It’s these costs that will point the way to defining the least expensive method of finding new customers. The following table outlines the company’s costs of customer acquisition based on four sample marketing strategies from our budget. For instance, online PPC campaigns provided the company with 250 leads through January, February and March. The company spent a total of $10,000.00 on its PPC campaigns during the first quarter. Therefore, its costs of customer acquisition include the $10,000.00 divided by the 250 generated leads, or $40.00 a lead.

Marketing strategy

Online PPC campaigns

SMS campaigns

Print and magazine advertisements

Trade shows, exhibits and conferences

January

50

25

15

250

February

125

15

35

150

March

75

10

10

100

Leads generated in Q1

250

50

60

500

Average cost of lead

$40.00

$50.00

$83.33

$60.00


When companies talk about increasing their marketing ROI, what they ultimately mean is to be able to reduce the costs of finding potential customers. If your company can increase the number of leads for every dollar spent on a marketing strategy, then you have essentially increased your marketing ROI and lowered your costs of customer acquisition. Success depends upon your willingness to track where your leads come from. Next, determine your average cost of lead and focus on the least expensive approach to finding new customers.

Read more about how to build a marketing budget (Inc.com)

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