4 Steps to a Basic Marketing Budget

It doesn’t matter if your business is a startup stage or has been around for years, a marketing budget isn’t optional. It allows you as a business owner to see how much money you are spending, where you’re directing your efforts, and how much money you have on hand. More specifically, according to Jessica Lucas, a marketing budget:

  • Provides a clear direction for your marketing strategy
  • Helps allocate financial resources for more effective spending
  • Provides tangible goals to strive for
  • Helps coordinate different business departments
  • Maximizes your marketing ROI

The intimidation factor causes many small businesses to shy away from budgeting. Some business owners worry that a budget will reveal something they don’t want to see, so they put it off and take an “ignorance is bliss” approach. But this is no way to run a business.

“Without budgets your company has no goals for which to measure itself against,” says 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 get organized about your current financial situation,” says entrepreneur Dave Lavinsky. “When you are working around estimates, it is impossible to create a realistic marketing budget.”

To establish baseline figures, you need to know how much money your business is bringing in on a monthly basis. Since this figure is often quite variable, it’s best to run your calculations based on what Lavinsky calls “reliable revenue.” This is the minimum amount of money your business makes each month. (If your monthly income ranges from $5,000 to $8,000 per month, reliable revenue is $5,000.)

2. Set aside the right amount

Most businesses determine their marketing spend by taking a percentage of their gross revenues. While it depends on a number of factors—including the size and stage of your business—you’ll likely find that 2 to 5% of gross revenue is ideal for marketing.

Businesses in the startup stage generally spend more than those that are well established. Play around with the numbers and see what works for you.

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3. Investigate funding options

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

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

It’s also a good idea to keep an emergency fund of marketing expenses in place so that you can self-fund through dry periods. A good rule of thumb is to set aside enough to cover three to six months worth of expenses.

4. Analyze and adjust as needed

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

Not only should you analyze and measure the efficacy of your budget from time to time, but you should also adjust your allocated funds if you notice that something is misaligned or imbalanced.

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

RELATED: Save Time, Money, and Your Sanity With the 80/20 Rule in Marketing

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