How To Determine Your Marketing Budget?

SocialB Digital Marketing Blog Last modified: 21 Mar 2023 by Matthew McKillop
Digital Strategy | Other

Knowing how much to set aside for marketing usually seems like a daunting and tricky task. This is mainly because most of us don’t know what to consider and where to start.

Determining your marketing budget involves several factors, including your business goals, the size of your business, the industry you’re in, and the type of marketing you want to do.

There is no one size fits all when it comes to budgeting but there are certain proven methods that can help you determine your marketing budget accurately.


Know your figures

Let’s start with the numbers, you have to first understand your business’ figures and know what they mean for you.

Let’s start with a list of figures you’d want to know before making a decision for your marketing budget:

  • Profit margin: Understand how much you make for every sale and use this to calculate your net income.
  • Cost per enquiry: Find out how much you spend in order to get 1 enquiry or sale
  • Cost per sale/service: How much you need to spend to sell a service or product.
  • Conversion rate: The percentage of visitors that complete a valuable action/convert compared to the total visitors


Percentage of revenue or fixed budget?

Once you know your figures, it should be easier to be able to decide which method you want to use to calculate your marketing budget. Choosing the right one will be vital for your business so think carefully and don’t base your decision on your gut feeling only but take the figures we’ve just talked about into account.

Let’s talk about the two widely used methods.

  1. Percentage of Revenue

In general, most businesses allocate about 7-12 % of their total revenue to marketing. Do you know why this is a great method? Because it’s a fact that you need to spend money to make money, especially with more and more businesses are now realising the importance of marketing.

By not setting a fixed budget you will make sure you don’t miss out on any opportunities, for example, if there was a channel that was generating lots of sales for your business, putting a stop to it because you don’t have any more budget to allocate would not be the smartest choice for your business.

The other side of this is that if you’re not hitting your revenue targets for the year, setting a percentage aside for marketing ensures you don’t commit to something you can’t afford.

It’s all down to the ROI (return on investment) actually. If there is a channel that covers all its costs and gives you a positive return, you’ll want to keep investing in that channel. However, this is where your figures really come into play. You need to make sure it’s feasible with all your costs and profit margins.

  1. Fixed Budget

The alternative method to using a percentage of your total revenue for marketing is determining a fixed amount as your budget. This method is mainly used by newer businesses, as they won’t have historical data around their total revenue, so they need to set a certain amount aside for marketing activities.

This is when you’ll need a solid marketing plan, as you’ll first need to decide what you want out of your marketing activities in the first instance. Rather than splitting your small budget between various channels and spreading yourself too thin, you are better off choosing one SMART goal for yourself and focusing on that when you’re creating a new business.

The only issue with this method is that there is no percentage and no way of calculating it, so no one can tell you how much you should be spending. The best way to determine your fixed budget is to do research. Talk to other business owners, similar to your size and ask about their budget and see if that’s a feasible figure for you. Don’t try to compare yourself to huge brands that sell similar products/services, make sure you find a brand your own size to be able to compare figures.


Decide which marketing channel gets the investment

Determining your marketing budget doesn’t just end with deciding how much you’re going to spend on your marketing efforts, you need to also think about which marketing channels you need to invest in.

One big mistake businesses make in common is thinking they need to make use of every marketing channel available. This is not correct, you should always be asking yourself ‘how will this channel make a difference for my business?’. Spend money where you can actually see a return on investment and always measure the impact of your marketing activities.

When you’re considering which marketing channel to invest in, especially for a new business, start by thinking about the customer journey and focus on the different phases like awareness and consideration one by one.


Figures  > Method > Channel – Use this model to determine your marketing budget to avoid making the mistake of either spending the money you don’t have on your marketing efforts or not maximising the opportunities you have.


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