4 Steps to a Basic Marketing Budget

It doesn’t matter if your business is in the start-up phase or has been around for years, a marketing budget is not optional. This allows you, as a business owner, to see how much money you are spending, where you are directing your efforts, and how much cash you have on hand. More precisely, according to Jessica Lucas, a marketing budget:

• Provides clear direction for your marketing strategy
• Helps allocate financial resources for more efficient spending
• Provides tangible goals to achieve
• Helps to coordinate the different departments of the company
• Maximizes your return on marketing investment

The intimidation factor makes many small businesses reluctant to budget. Some business owners worry that a budget will reveal something they don’t want to see, so they postpone it and take an “ignorance is bliss” approach. But that’s no way to run a business.

“Without a budget, your business has no goals to measure against,” says a business consultant David Gabbert. “There is no accountability for anyone within the company, including management.”

Budgeting can be complex, but here are some general tips and tricks to make sure you get started on the right foot:

1. Establish a baseline

“The first step to creating a solid marketing budget is to organize your current financial situation,” explains the entrepreneur. Dave Lavinsky. “When you’re working on estimates, it’s impossible to create a realistic marketing budget.”

To establish benchmark numbers, you need to know how much money your business brings in on a monthly basis. Since this number is often quite variable, it’s best to make your calculations based on what Lavinsky calls “reliable earnings.” This is the minimum amount of money your business earns each month. (If your monthly income ranges from $5,000 to $8,000 per month, reliable income is $5,000.)

2. Set aside the right amount

Most companies determine their marketing spend by taking a percentage of their gross revenue. Although it depends on a number of factors, including the size and stage of your business, you will likely find that 2-5% of gross income is ideal for marketing.

Start-ups typically spend more than established ones. Play with the numbers and see what works for you.

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3. Investigate financing options

There’s a common phrase that goes “it takes money to make money,” and anyone who’s been in business long enough knows it’s true. If you find yourself in a situation where you need more money to fund marketing expenses in order to generate revenue, it is imperative that you understand your options and budget accordingly.

One way to ensure that you always have the cash you need to keep your marketing on target is to get a revolving line of credit. This gives you access to cash whenever you need it and repayment terms are flexible compared to traditional bank loans.

It’s also a good idea to keep an emergency fund in place for marketing expenses so you can support yourself during dry spells. A good rule of thumb is to set aside enough to cover three to six months of expenses.

4. Analyze and adjust as needed

A marketing budget isn’t something you set in stone and then forget about; successful companies recognize the variable nature of marketing and review their budgets regularly.

Not only should you analyze and measure the effectiveness of your budget from time to time, but you should also adjust your allocated funds if you notice anything misaligned or out of balance.

Budgeting isn’t the sexiest subject. While it’s more fun to talk about the creative aspects of marketing, like design, content, and taglines, you won’t be able to do any of those other things if you don’t budget properly. Put your priorities in the right order and everything else will come together naturally.

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