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How to create a marketing budget

Marketing is responsible for driving product awareness, cultivating brand credibility and building trust amongst your target audience. It creates and maintains demand for your products and services – without it, your new business could risk failure due to lack of sales.

Although important for all businesses, marketing is vital for startups that are looking to establish a customer base. But how much do you spend when you’re already on a tight budget and time? Which channels do you invest in? What are the steps to establishing a marketing budget? Keep reading to find out…


Why do I need a marketing budget?

Successful marketing isn’t just about strategic thinking and effective campaigns – it’s about adhering to a strict budget and choosing the most cost-effective option for your small business. A marketing budget will help you plan your income and expenditure, keeping costs low and lean will help ensure you have enough money for the things you need. If you don’t plan and manage your budget tightly, your business may run out of money. Equally, you need marketing to scale, so if you don’t spend it on the right things, you’ll risk wastage and missed opportunities.

A marketing budget outlines all the money a business intends to spend on marketing-related projects over a period of time, such as a quarter or year. Expenses can range from paid advertising to print ads, public relations, and events to new marketing staff, as well as website development and efficiency tools. As you can see, the marketing net is very much wide-cast, making it even more important for your spending to be clarified within a marketing budget.

As you’ll see, there’s a lot to take into consideration when creating a budget and tracking the results of your investments. But don’t worry – there are some incredible tools out there, whether standalone or part of a platform you’re using that can help you assess your return on investment.

Does it need to be a separate budget?

Depending on the scale of your business, it’s likely you’ll need a few different budgets that each focus on different operational elements of your business. They should all work together in tandem. Separate budgets can include:

  • Sales – an itemised list of forecasted sales in both units and value
  • Stock and product – inventory / stock levels, production costs, direct labour, raw materials 
  • Overheads – any costs not directly related to sales or production
  • Marketing – although marketing expenditure could be included within your overhead budget, in most cases businesses will choose to have a dedicated marketing budget.

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

    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.

  • Traditional/offline

    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!)

Marketing channels

Your most effective marketing channels will depend on the type of business you own and the audience you’re targeting. Review this list of channels and choose a few that seem to suit your business best (this will depend on your products/services, customers, resources, skills, and budget). Straight away you can probably pick out the ones that appeal most or eliminate some due to practicality or cost:

Channels Best used for… How to track  Typical cost 
Digital ads (PPC – pay-per-click) Driving more traffic to your website  Google Analytics High
Search engine optimisation (SEO) Driving more traffic to your website (longer term) Web analytics/keyword tools  Low
Email marketing  A main channel of communication with customers/prospects and to drive sales Email service provider analytics and Google Analytics  Low
Social media (paid and organic) Growing a community of fans Social channels analytics High for paid, low for organic
Content/blogging Showing that you’re the expert Google Analytics Low
PR Newsworthy stories Unique offer Medium 
Newspaper/magazine ads Specific target markets if you know that yours match the publications Unique offer/promo code/trackable telephone number or link  Medium 
TV ads High-value brand awareness and sales Unique offer/promo code/trackable telephone number or link   High
Radio ads Medium value brand awareness and sales – products that can come across well in an audio ad Unique offer/promo code/trackable telephone number or link  High
Events/exhibitions Putting your product/service in front of a new audience by exhibiting or speaking at events Number of followers gained/data captured/sales  Medium
Printed leaflets/flyers Geographically targeting Unique offer/promo code/trackable telephone number or link  Low
Telephone Contacting past customers for repeat purchases if you have their permission Number of sales  Medium
Referrals/word of mouth Encouraging enthusiastic customers to share their experiences  Number of referrals  Low
Partnerships  Two businesses with similar target markets but non-competing products Number of sales/web traffic Low
Sponsorship Enhancing brand reputation by association Web traffic High

The above list isn’t exhaustive, as there are new marketing channels and tactics emerging daily. What’s important to note when establishing your marketing budget is the importance of a test-and-refine approach. Even though you commit to a specific spend on cherry-picked channels you feel could be a good fit with your target audience, you should be tracking your campaigns’ spend vs effectiveness. Review web analytics regularly – it will become clearer what you can afford to spend. By monitoring your marketing costs and refining your efforts, you will be able to generate more accurate budgets as time goes on.

Step-by-step: Creating a marketing budget

It’s crucial to have a marketing budget in place, outlining all the money your business intends to spend on marketing-related activities. Here are some recommended steps to creating a comprehensive budget that reflects your goals.

  1. Understand your target audience
  2. Outline your marketing goals
  3. SWOT analysis
  4. Marketing strategy
  5. Marketing plan
  6. Calculate your ROI

Let’s look at each of these steps in a bit more detail. 

Understand your target audience

Unless you invest time in understanding the customers you’re marketing to, you’re going to be throwing money into the wind. What’s your buyer’s journey? What steps do they take as they journey from prospect to paying customer?

Understanding this will help you learn how your audience interacts with your marketing – giving you a clearer view of where to set your goals and budget to better reach them. 

As part of this process – ask yourself:

  • How are customers finding my products/ services online?
  • How many site visits do I get a month? How long are they spending on it? Is the content engaging enough? Is the user journey clear to them? 
  • What’s my cost per acquisition across my advertising campaigns? 
  • How many leads am I generating per month? How many are converting into customers?
  • What is the typical value/revenue of each lead?
  • What’s the deciding factor for customers when it comes to selecting my business over my competitors? 
  • Have I fully grasped their pain points?
  • Have their preferences changed during the impact of COVID-19?

Never stop asking these types of questions as data and buying habits change. This process will flag any marketing tactics that are/aren’t working, helping you decide whether your marketing goals need altering as well as clarifying the areas your marketing budget should focus on.

Outline your marketing goals

Marketing goals should be SMART:

  • Specific – What is the goal?
  • Measurable – How will I measure my progress?
  • Attainable – Do I have the skills and the resources for it?
  • Relevant – Why is this goal important?
  • Time-bound – When will I achieve this goal I’ve set?

Don’t forget to keep in mind your broad marketing objectives such as:

  • Generating leads
  • Increasing brand awareness
  • Connecting and engaging with my audience
  • Building an online presence and growing my online audience.

SWOT analysis

Your marketing strategy forms the backbone of your budget – but before this can be formalised, a SWOT (Strengths/Weaknesses/Opportunities/Threats) analysis is helpful in providing an objective look at your business and signposting worthwhile areas to include in your budget. For example, committing extra budget in places you’re excelling in, while investing in areas that require improvement. For example:

  • Are you successful in generating leads to your website, but struggling to convert them into a customer?
  • Are your competitors more present on social media? More visible in search engine results for your top keywords?
  • Is your brand as well known as your competitors?
  • Are you unclear on your unique selling points?
  • Do you have positive online reviews? Could there be more?

As part of your Threat analysis, take a look at your competitors’ marketing. What are they doing well? Are there any gaps/opportunities? Do they seem to be spending more of their marketing budget in certain areas?

Marketing strategy

Developing a marketing strategy is an essential part of running a successful small business and will ensure that your organisation has focus, as it’s shaped by and should reflect your goals. It means resources such as time and money are spent on the things that will best work towards achieving your objectives. A free marketing strategy template can be found clicking on the button below, so you’ll have a great reference point when establishing your marketing budget.

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Marketing plan

Your marketing plan is your roadmap. It sets out how you’re going to achieve this – the channels, tactics, timings and budget that you will use – based on your marketing strategy. Your marketing budget is an essential component of your marketing plan so you need to ensure you have a firm understanding of both your strategy and plan when creating your budget. It can’t be a standalone spreadsheet – it’s an important piece of the overall marketing jigsaw.

The marketing plan download below includes:

  • your marketing objectives
  • your budget
  • your target customers
  • your brand and USP (unique selling proposition)
  • marketing channels
  • tactics and messaging 
  • responsibilities 
  • timings
  • tracking and measuring ROI.

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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.

  • Budget allocation

    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.

How do I ensure I get the best ROI?

Not all marketing activity leads to income – it can be a challenge to quantify, but is equally vital to a company’s success. A regular return on investment (ROI) review on your marketing efforts is a method that produces hard evidence of its importance. Here are some ways to get the best ROI on your marketing efforts:

  • Be aware of your total revenue, gross profit and net profit when calculating your ROI. This will help you target marketing efforts that bring you the largest return
  • Commit time to measuring and tracking the ROI on all marketing activities to quickly learn which tactics are the most successful. For example, are your Google Analytics goals set up correctly on your website? Are you using UTM tracking codes to understand the effectiveness of your digital marketing campaigns? Create a well oiled reporting framework that gives you the data you need to make smart marketing decisions moving forward
  • Be prepared to manoeuvre your marketing budget to support the activities that offer the best ROI
  • An efficient way to learn which digital ads are proving to be the most effective is by running split tests. For example, you could run three different Facebook adverts featuring different messages and imagery. One focusing on the benefits of your product, another on the trustworthiness of your business and the final one a behind-the-scenes blog post showing what goes into making your product. Product and lifestyle images and design styles can be tested too. Which call to action gets the most clicks? Free trial? Sign up to our mailing list? 10% off? Learn more?
  • Refine your audience targeting. Again, split tests early on will start to signpost the most successful groups that engage with your promotional content. These audiences might vary from channel to channel. 
  • Set maximum budgets for your digital advertising such as social media and Pay Per Click (PPC) ads. This will ensure you don’t go over budget while learning what’s most effective before expanding investment in the right areas
  • Make use of analytics tools to assist your ROI analysis. The platforms you use want to prove their effectiveness, and part of this is to provide the data you need to help you get the best results
  • Marketing budget templates are also a useful way to ensure you’ve considered your channel options by breaking down your master marketing budget into specific areas. For example, you can create a specific paid advertising budget, a content budget, a product marketing budget, a public relations budget and so on. This can assist in ROI analysis as it gives a clearer view of what’s being spent where.
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