How to Build a Marketing Budget: 4 Essential Elements

Building a marketing budget? Take these essentials into consideration.

How to Build a Marketing Budget in 4 Essential Elements

For the entrepreneur and small business owner who is just earning enough revenue to start developing a concrete marketing budget, it can be almost impossible to know how much you should be spending, where to spend it, and what returns you can expect on your marketing investment.

But you have to start somewhere, and until you learn which marketing channels are most effective for your business in the long term, it's time to begin testing.

Four Basic Concepts to Consider When Building a Marketing Budget

Marketing plays a crucial role in business growth, obviously, but it’s shocking how many small businesses and the entrepreneurs don’t place sufficient emphasis on it. When marketing gets pushed to the side, you can usually attribute it to the low appeal of delayed gratification.

Businesses want to see immediate returns, but marketing often demands long-term patience. Start with mastering patience and proceed to budgeting.

When you’re ready to address marketing budgets seriously, place the following items at the top of your list of considerations.

1. Average Spending Habits

You don’t want to base your spending habits primarily on the behavior of another firm, but it can be instructive to see how others are budgeting for their marketing initiatives. According to the 2016 State of Small Business Report from Wasp Barcode, the distribution looks like this:

  • 9 percent of businesses invest nothing in marketing.
  • 25 percent of businesses invest 1 to 3 percent of revenue in marketing.
  • 29 percent of businesses invest 4 to 6 percent of revenue in marketing.
  • 24 percent of businesses invest 7 to 10 percent of revenue in marketing.
  • 9 percent of businesses invest 11 percent or more of revenue in marketing.

    This clearly indicates the “sweet spot” lies somewhere between 1 and 10 percent. More than four out of five small businesses fall into this range.

    It’s also useful to note that 62 percent of small businesses invest more than 4 percent. This doesn’t necessarily mean that you should. It does suggest what works for other businesses, however.

    2. Where Small Businesses Invest Resources

    The report from Wasp Barcode also states that email, website, and social media are the top three marketing tools currently in use by small businesses. Once businesses reach roughly 51 or more employees, Internet advertising becomes an additional priority.

    3. Organizing Financial Information

    The first step in developing a marketing budget is to organize all your financial information. “Understanding your finances starts with organizing your revenue information. You need to know how much money your company makes on a monthly basis and the variations that might exist,” explains entrepreneur Dave Lavinsky.

    “Although income can vary significantly throughout the year, you must organize the information based on reliable revenue.” Reliable revenue is the minimum amount of money your company makes each month.

    For example, if your revenues range from $10,000 to $15,000 per month, the reliable revenue would be $10,000.

    Anything above this should be regarded as extra and should not be used to determine your budget.

    4. Determining Where the Audience Is

    If you want to enjoy a high ROI on your marketing investments, you have to determine where your target audience is. Spending money on the wrong strategies and mediums is the worst possible thing you can do with your budget.

    Take time to develop buyer personas and make sure you know where they’re spending their time. A great way to study audiences is by analyzing your social media followers. They’ll tell you a lot about who they are by the content they share, comments they like, photos they post, and way they write.

    The Marketing Budget: Piecing it All Together

    If you want your business to grow, then you have to have a concrete marketing strategy in hand. At the heart of every marketing strategy is a well-delineated budget.

    Most people don’t find the term budgeting very sexy, but it’s imperative that you grasp the essence of it and build a plan that will enable your operation to flourish. Keep the preceding tips in mind and see where your budget takes you.