Lord Leverhulme, the ‘Lever’ in Unilever, reportedly said “I know that half my advertising is wasted, I just don’t know which half”. Even though Leverhulme worked in the 1920s, the sentiment behind his problem remains the same today: How can you track and determine the effectiveness of your marketing spend?
The only way to be sure is to create a marketing budget.
What is a marketing budget?
A marketing budget is a comprehensive list of all the money a business plans to allocate to marketing during a specific period of time. It goes beyond simply listing expenditures. Marketing budgets serve as a tool to measure the efficiency of your spending and make necessary adjustments.
Sophie Turton, Founder of marketing agency Electric Peach, says: "A marketing budget is all the costs you’re going to put against all your marketing. On and offline, brand awareness and driving sales. You allocate it based on what has come before, your successes over the last year, for example. It is split usually quarterly or even monthly, based on what your targets are.”
How to create a marketing budget in 5 steps
Creating a marketing budget can be as easy as filling a spreadsheet with your ‘marketing shopping list’, detailing all the areas you need to support your marketing efforts from software to personnel, media, email, and conferences, right down to the amount of stationery you need. It is crucial to be detailed, however, because little things do add up.
Here are five points to bear in mind when creating your marketing budget:
1. Set your spending limit
First, decide how much you’re willing to spend. Some believe that a high-growth company, or start-up, should spend between 15-30% of projected revenue; one in a period of moderate growth should spend around 10-15% and stable companies, ones that are roughly happy with their market position should spend between 2% and 10% of their revenue [1].
2. Set goals
If you don’t know what your goals are, it will be very difficult to allocate your marketing spending effectively. Goals will tell you if you need lots of social posts, online ads, outdoor posters, email campaigns – and the most effective combination.
3. Research costs
It can be daunting to find out how much everything costs. It helps to speak to specialist agencies to get an idea of how much campaigns might cost and what might happen if you increase or decrease your spending.
Digital media is particularly helpful in offering sample costs for different types of marketing activity, for example, Google’s keyword planner tool shows how much it costs to run an ad campaign.
4. Have a contingency
Picking the right time to market your product can be the difference between success and failure, which is why it makes sense to have a contingency.
For example, say you’re an ice cream manufacturer and there is an extended period of unseasonably warm weather. It would be in your interests to capitalise on the weather and advertise, but if you’ve already committed all your spending you may have to either pass up the opportunity or sacrifice a later campaign.
Turton says that a marketing budget should be as much about allocating time as well as funds.
"You really need to be aware of what’s going on around you," she says. "You might see one of your competitors is really jumping ahead in the field that you want to excel in so you need to react quickly.”
5. Put money aside for testing
Many marketers focus their budgeting on activities that yield immediate results. However, without setting aside funds for testing, you may find yourself in Lord Leverhulme's position of not knowing whether your budget is being wasted.
Turton says testing is vital for providing evidence that a proposed marketing strategy will work. It can also help avoid complacency when thinking about your customers.
"Not enough emphasis is put on testing because people have so many assumptions about what their audience cares about," she says.
Given their nature, some test campaigns will be unsuccessful and it is important to factor this into your marketing budget.
One of Turton's marketing clients is mdgroup, a patient services and technologies company for clinical trials. The company's CEO Tarquin Scadding-Hunt says that testing is a vital part of ensuring that marketing spend contributes to business growth.
"My CFO might wonder if I’m putting pressure on the margin but I like the idea of experimenting," he says. "We experiment in different ways and we also give Sophie and her team flexibility. Businesses could trim back to the hard core of what they do and nothing else. But if you’re looking for the sort of growth we’re going after, you can’t afford to only do that.”
When it comes to testing and learning, make your marketing budget go further using the American Express® Business Platinum Card¹, which can be used with many online tools like Google, Buffer and Hootsuite. You'll also collect 1 Membership Rewards® point on every eligible £1 spent, or double that every time you spend £10,000 in one month².
The importance of a marketing budget
Control of spend
A marketing budget helps you maintain control over your cash flow on a day-to-day basis. It allows for some flexibility so that unexpected costs or fluctuations in prices don't force you to abandon a campaign.
Control of your goals
The impact of advertising or email campaigns may not be immediately evident. It can take several months for results to materialise. By measuring revenue against marketing spend over time, you can stay focused on your goals.
“There is a big difference between marketing budgets for an e-commerce business versus a very high-cost B2B business,” Turton warns. “[In the latter] the revenues coming into a sales team on a month-to-month basis don’t massively impact the marketing budget, other than reviewing objectives quarterly. In a B2C business, marketing often directly impacts the money that’s coming in so there’s a more immediate view of what’s going on.”
Sample marketing budget
A basic marketing budget typically has three columns: category of spend, expected cost over a defined period, with the actual amount spent filled in afterwards for comparison. Ideally, the expected and actual spending should align - significant underspending can be as bad as overspending, as it indicates inadequate support for your marketing efforts.
A more advanced budget would repeat this process for previous periods, such as the previous quarter, to analyse changes in marketing spend. This analysis helps identify what is working and whether adjustments are necessary.
 |
1. The maximum payment period on purchases for the Business Platinum Charge Card is 54 days. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
2. Membership Rewards points are earned on every eligible full £1 spent and charged, per transaction. Terms and conditions apply. With the double Membership Rewards bonus, in any calendar month, you will now receive 10,000 Membership Reward bonus points once you have spent a cumulative £10,000 in that month. The Bonus Points will be transferred to your Membership Reward account and can be viewed on your Card Account statement. You will continue to earn one Membership Reward point on eligible purchases in excess of £10,000 for each pound you spend on your Card for the rest of that month.
Sources:
[1] Spendesk, 5 excellent marketing budget examples to copy, 2022
