How to Build a Marketing Budget: An 8-Step Guide
It’s that time of year again, when marketers figure out how to allocate their resources to meet or exceed their goals next year. Here are some important things to keep in mind when setting your marketing budget for an upcoming fiscal year or quarter.
(These tips are ideal for marketing teams of 10 or more, but the best practices apply to everyone.)
Where to start: top down or bottom up?
Top-down marketing budgeting is done according to the marketing investment objectives. Usually, the CFO or the CMO, or both, divide the dollars into several large spending buckets. Marketing leadership will typically divide the total marketing spend available by functional area (field marketing, product marketing, etc.) or by cost center. Then, mid-level marketers (field marketing directors, for example) will further allocate their spend in a way that makes the most sense to their team.
Bottom-up marketing budgeting occurs when marketers start with a long list of programs and activities that they would like to spend money on, and one by one they choose which ones will be added to the budget. This approach is common in startups, small organizations, or companies with less mature marketing operations functions.
Our recommendation? Jennifer Cracklen, our lead education consultant who helps companies’ marketing teams set up their marketing budget processes, recommends a hybrid approach: start by setting goals from the top down, then develop a bottom-up activity plan. high. This approach gives marketers the autonomy to plan their budget in the way they deem most appropriate while staying true to the overall priorities established by marketing management.
Eight Steps to Establishing Your Marketing Budget
When it’s time to budget, here’s what the process might look like. Of course, there will be many organization-specific variations, but this basic structure is the one used by high-performing organizations.
1. Your marketing team receives their spending targets from the top-down budgeting process undertaken by your management or by Marketing Operations. Now that you know how much money you need to invest for the year, it’s time to sit down as a team and make some decisions.
2. List all the activities your team might want to perform during the year, along with their estimated costs, and organize them into relevant groups. Be sure to consider any marketing activities or commitments you made in the previous year. With accruals, these items will be part of the marketing budget in the year they occur, not the year the money was spent.
3. As you narrow down your list to only include what you think will meet your spending goals, start populating your budget into whatever system you’re using (some companies use a marketing performance management tool like ours, others use Excel.) Write down all the information about each line item that you may need to fill in for reporting purposes, such as vendor, target audience, product line, region , the CRM campaign, etc.
4. Take a step back and evaluate each budget. Does this match your goals? Refinements are probably needed, and marketing budgeting software is often used to help you do just that. It is at this stage that the difficult questions usually emerge: what can we take out and what should we leave in? What will be the impact of these decisions?
5. Submit your budgets for internal review. Cross fingers.
6. At this point, there is a process of adjustments, with budgets going back and forth between the marketers who set the budget and their executives.
Two-week cycles are common here: two weeks to set the initial plan, two more weeks for the first review, two more weeks for additional adjustments, etc. On average, the entire process can take around two months, although this can vary significantly—especially if the numbers need to be approved by a board of directors.
Effective marketing budget planning takes time. Start the process 3-6 months before the start of the exercise so that the various marketing teams have enough time to define tactical plans.
seven. The marketing department evaluates the budgets. They are looking for two things:
- Compliance: Did all the marketing teams plan how they should have done it and did they do it on time? Do their budgets match their investment goals?
- Performance: Marketing managers will spend time analyzing each team’s intended uses of their funds. They will pay particular attention to whether planned marketing investments adequately support overall business goals.
8. The marketing department approves the budgets. Now is the time to get out there and start marketing!
Bonus: avoid these budget traps!
Don’t fall prey to these three pitfalls that you can encounter surprisingly often during the budgeting process:
- Not remembering marketing activities that carry over from one budget period to the next. It’s easy to overlook subscriptions, deposits, and prepaid vendor agreements (such as conference exhibit fees). These are non-negotiable elements of this year’s budget, and not including them in the plan will create confusion later.
- Not capturing the originally planned budget amounts. No doubt your budgets will undergo many changes throughout the year. The items will change, as well as the amounts. It’s normal. However, as happens throughout the year, too many organizations simply overwrite the initial budget. They lose the ability to review metrics such as plan vs. forecast (to help stay on budget) and plan vs. actual (to see how accurate the budget planning was). Make sure you have a way to capture your original budget plan.
- Not leaving enough time. Year after year, we hear from organizations that are surprised by the length of the budget process.
Start early, analyze often, and remember it’s part of how you marketing so you can do good marketing.
Want more advanced advice?
The eight steps outlined above are the basics of developing a marketing budget. But organizations looking to become more strategic in their budgeting process can find more advanced budgeting and marketing planning guidance in “The Gold Medal Handbook of Marketing Planning” (registration required).
