Building a successful company almost always involves successfully marketing your product, your service, or yourself. It is important to budget wisely when coming up with a marketing plan, because it can be easy to spend money in vain if planning is not involved.
For example, if your target audience is older consumers, marketing money spent on social media campaigns may not be effective in reaching them. One of the best ways to make sure that your marketing money is being well spent is to develop a comprehensive marketing strategy and come up with a solid marketing plan. Here are the first three of six steps to developing a marketing budget as part of your marketing plan:
1. Know Your Sales Funnel
Building an effective marketing budget requires a deep dive into your sales funnel, where you’ll track results throughout the revenue cycle, from prospect to customer. Harvesting this data from your marketing automation software or CRM makes this process relatively simple:
- How many site visits do you have per month?
- How many leads are you generating per month?
- How many of the leads convert to sales qualified leads (SQLs)?
- What’s the cost of generating these SQLs? (e.g., website development, outsourced content creation, Pay-Per-Click, time spent by marketing and/or sales to nurture these leads, etc.)
- How many leads convert into opportunities?
- How many of those opportunities close as new deals?
- What’s the typical value/revenue of a new deal?
2. Know Your Operational Costs
Next, you’ll need to understand your operational costs:
- How much would it cost in time and labor to deliver contacts?
- Does your internal staff have the bandwidth required for this work, or will you require additional headcount along with the related employee benefits costs?
- How much would it cost if you hired an agency of record? (The upfront costs will be higher than doing it in-house, but the results and return on investment could justify the additional expenditures.)
- What are the potential costs of your inaction? (Be sure to calculate rapid changes in the marketplace and if you can afford to reduce your market share in the face of current and future competition.)
3. Set Your Marketing Budget Based on Business Goals
Determine your business goals by asking yourself the following questions:
- What are your business objectives for the quarter?
- What are your business objectives for the year? How about three years out?
- How many of those contacts need to be delivered to your sales team, based on their close rates, to impact revenue enough to achieve those objectives?
It’s common for small businesses with revenues less than $5 million to allocate 7-8% of their revenues to marketing, splitting that between brand development costs such as websites, blogs, sales collateral, and promotion costs, as well as campaigns, advertising, and events. Never base your marketing budget simply on what’s left over after covering all other expenses.
The three final steps will be provided in the next blog post.
This article was written by Michael Evans at Forbes.com