What are the typical marketing costs I need to budget for?
When you’re planning your marketing budgets, there are more ways to invest your funds than ever before.
Digital advertising is an ever-growing heavyweight in the modern marketing arena. Digital spending now receives the largest investment of the UK marketing and communications budget. At 40.7% it has increased 18.5% since 2015 (Source: Scopen’s Agency Scope UK 2021/22 report). A further 37.5% share of marketing budgets is put towards above-the-line (mass media) actions, while 21.8% is spent on below-the-line (direct marketing, more targeted audience) actions.
And let’s not forget the impact COVID-19 has had on marketing budget allocation. With many consumers staying safe at home and increasing their time online, traditional advertising has suffered during the pandemic. Budgets destined for these channels shifted over to digital channels instead, particularly video advertising. According to emarketer, digital ad spending will account for more than three quarters of total media spend in the UK during 2021.
While digital marketing tends to be more budget-friendly and ever increasing in popularity, don’t dismiss traditional advertising such as radio, print and TV. It still has value depending on who you’re trying to reach. Even if it’s out of your budget at the beginning, keep it in mind as an option in the future. Looking to market to your local community? There’s still a lot of persuasive power behind leafleting in your local area and door drops. (Make sure you have the right permission in place beforehand though!)
How much can I invest? Where do I invest?
Calculate your ROI
Working out your return on investment is a practical approach to understanding how much you want to spend. Determine how many leads you need to make a sale and the costs associated with that. To safeguard your business interest, it is recommended to estimate sales based on the lowest data parameters. Investing in market data is a great springboard to understanding what you can expect from your marketing efforts. If no data is available, you need to spend time in your market, getting an understanding of the demand for your products/services. Once you have the data to back up your marketing strategy, you can design your marketing budget accordingly.
Allocate more to marketing when starting out
Marketing budgets for small businesses are approached very differently to bigger corporations. A small business can’t spend millions each year, analysing what works before refining its marketing budget. It needs to be more cautious with what it can commit to as it gradually understands what works best over time.
Having a clear idea on how much you want to spend is crucial. How much you should spend depends on your revenues, market and who you need to reach. As a rule of thumb, new businesses should allocate more of their predicted gross revenue to marketing. Figures are dependent on your business, but in the early days, you should expect to allocate anywhere from 12% to 25% of your gross revenue. In contrast, established companies usually spend 1% to 10% of their budget for marketing purposes.
If you’re working on a tight marketing budget in the beginning, take a look at our list of 43 low cost or free advertising and marketing ideas.
Understanding your sales funnel is a key component in allocating a fair amount of marketing budget to each step of your marketing plan. For most small businesses, the sales funnel divides into four categories:
- Awareness – How can you create awareness amongst customers? As a small business you should be prepared to spend at least 50% of your marketing budget in generating awareness. This proportion will decrease as time goes on and your brand becomes more well known. Awareness channels depend on your business but can range from leaflet distribution to search engine and social media advertising.
- Interest – Generate interest among customers who are looking for your product / service. Allocate budget to more targeted advertising such as email marketing, search engine optimisation and helpful and engaging content.
- Decision – Your customer has completed their research and is comparing options to make their final decision. What makes you better than your competitors? Is your product unique or does it have a feature that competitors don’t? Could you focus your marketing messages around this? If only slight differences to your competitors, could you be thinking about allowing for special introductory discounts as part of your marketing activities?
- Action – Allocate budget to allow for follow up offers that get new customers across the line e.g. a special deal that expires in 48 hours in order to capitalise on warm prospects.
By understanding the flow from category to category you can efficiently allocate specific funds in line with your marketing goals.