How to effectively set your marketing budget

When it comes to marketing ideas, the opportunities seem limitless. Your message can be splashed across eye-catching billboards and videos can come to life on Instagram. You can collaborate with your favorite influencers and give your website a much-needed overhaul. As much as it’s fun to dream about these ideas, they all boil down to one thing: they all cost money.

Clients ask us: what should my marketing budget be to effectively achieve my goals? Unfortunately, there’s not one straightforward answer. As much as we’d like to tell everyone a yearly $5,000 investment across your marketing will increase your ROI by 200%, this isn’t true.

Although there isn’t a one-size-fits-all answer for determining a marketing budget, there are ways to come up with a number that works for you. Many well-intentioned clients allocate a random dollar amount toward their marketing efforts. However, this is not ideal. Sometimes your marketing budget is too small to move the needle. While spending $1,000 on a Facebook campaign seems like it should have an effect, sometimes the budget is too small to make a noticeable difference.

So, what does work? A strategic plan. Taking a randomized approach to marketing won’t give clear insights into what tactics are working. Whether you’re starting from square one or want to reevaluate your current marketing spend, this article will help you figure out how to effectively set your marketing budget.

How to set your marketing budget

When we talk about marketing, we’re referring to paid advertising, sponsored content, website expenses, events, promotional items, software, etc. A marketing budget is effectively set using a concrete strategy. With a solid foundation, your marketing efforts will provide a better-documented ROI. Bottom line: treat marketing as an investment, not as another business expense.

 It goes without saying that marketing is beneficial for many reasons. Although you may not see instant results, marketing helps your organization achieve several goals, such as:

Building brand awareness
Communicating timely information
Promoting products, services, and events  
Engaging customers and prospects  
Generating leads  
And more

Now, back to budgets. There are a few ways you can come up with a number.

Approach #1: Marketing budget set by percentage of sales

effectively set your marketing budget by percentage of sales

This top-down approach simplifies how to determine a marketing budget. For example, the U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue on marketing if you’re doing less than $5 million a year in sales.

Decisions on your marketing budget can be driven by the type of industry you’re in and how aggressive your goals are. Deloitte’s 2020 CMO Survey found that B2B companies earmark roughly 9.4% of their overall budget to marketing efforts.

Alternatively, if you work for a B2C (product-focused) company, Deloitte reports that 15.9% is the average given to marketing teams.

Marketing has grown more competitive as the amount of revenue businesses spend has increased steadily over the past 10 years. As of 2021, the average marketing percentage of revenue lands around 13%, compared to just 8% back in 2011.

While allocating budget based on sales is simple in theory, the problem with this method is that it doesn’t factor in your marketing strategy—goals, tactics, projects, etc. That’s why we recommend taking objectives and tactics into account when creating your budget.

With paid advertising, certain tactics cost more than others. Want to run a broadcast tv commercial? The cost of production and placement is more expensive than a simple Facebook ad campaign. Knowing which tactics you plan on using gives a realistic idea of what your budget can accomplish.

That’s where approach #2 leads us…

Approach #2: Marketing budget set by objectives

effectively set your marketing budget by objectives

Another approach to effectively set your marketing budget is by establishing objectives and estimating the cost needed to achieve them. First, you’ll need to determine what you’d like to accomplish and the strategies and tactics you’ll use to achieve your goals.
These could include:

Display ads to promote a sale
Sponsored social media posts to generate email list subscribers
Paid search ads to drive traffic (and purchases) to a specific product page  
High profile event sponsorship to boost awareness

Make sure you’re spending money on the tactics required by your current marketing goals — goals set based on your audience and their journey from prospect to customer. It’s easy to make assumptions about how certain channels will perform, but without research, these are simply guesses.

If you’re not sure where to start with budget allocation, a guideline to follow is the 70-20-10 rule.

70% of your budget is allocated toward strategies you know work well
20% of your budget is allocated toward new strategies aimed at helping you grow
10% of your budget is allocated toward experimental strategies

Focus on creating a sustainable marketing plan that continually fills your marketing funnel. Spending your entire budget on one tactic, like SEO, is not a sustainable strategy. If Google changes its algorithm and your success comes to a screeching halt, you are in a tough position. Don’t have the success of your business riding on one or two channels.

Auditing your marketing efforts

Of course, creating a budget is just the beginning. Once your efforts have taken off, evaluate the efficiency of your marketing strategy and optimize as results start rolling in. Set up analytics dashboards for digital strategies to determine the ROI for each channel. Traditional media can be more difficult to track, though not impossible. We explain some ways you can track your traditional efforts in this article.

auditing your marketing will help effectively set your marketing budget

Experiment, evaluate, and scale your campaigns as needed. Knowing how much you’re spending on marketing can help paint a clearer picture of how much return on investment you’re generating.

The best marketing budget is the one that works for you

Let’s loop back around to the question at the beginning of this article: what should my marketing budget be to effectively achieve my goals? Ultimately, there’s no magic formula.

effectively set your marketing budget by mixing tactics

Your marketing should be a mix of tactics, based on your overall goals and the audience you’re trying to reach.

Having a solid marketing budget in place helps you set benchmarks and goals that move your business forward. You can set realistic expectations for marketing channels and better understand the revenue needed to make your marketing efforts worthwhile.