Product launches. Webinars. Co-marketing campaigns. Email newsletters. None of these marketing programs happen without the proper budget.
As a marketing leader, you need to be able to create a bulletproof marketing budget. Budget building is a huge part of your marketing operations process. Big plans and grand visions cost cold hard cash.
Before you can lead your marketing team to success, you need to get a handle on how you’re going to get there. The key is learning how to create a generous, yet strategic marketing budget.
How much should you budget for marketing?
Marketing budgets will fluctuate depending on company size, revenue, and industry. But on average, most CMOs report spending anywhere from 8 and 16% of total revenue.
Marketing budgets are important for a number of reasons.
First, they help you maintain a financial record of your team's spend. Secondly, they act as a roadmap for the priority of your marketing efforts. And third, they allow you to forecast long-term strategies and initiatives that require advanced planning.
How to calculate your marketing budget
The true size of your marketing budget depends on a number of unique factors. These include things like business size, annual revenue, industry, and more. All of this information will help you choose the correct method for calculating your marketing budget.
Here’s a quick look at four of the most popular budgeting methods.
Percent of revenue model
One way to calculate your marketing budget is to allocate a fixed percent of your annual budget to marketing. This method is popular because it’s simple.
Companies that utilize the percent of revenue model know that their marketing budget will always align with the company’s overall success. This strategy also helps prevent overspending in your marketing department and reduces the need for budget reforecasting.
What percentage of your company’s revenue should be spent on marketing?
The biggest problem with the percent of revenue model is deciding that magic number. What percent of your revenue should you spend?
Businesses operating for 1-5 years should allocate 12-20% of revenue
Businesses operating for more than 5 should allocate 6-12% of revenue
B2B businesses should allocate 7-8% of revenue
B2C businesses should allocate 9% of revenue
Again, it’s best to use these percentages as a guide for your own internal conversations. Never be afraid to tweak a strategy to better fit your business needs. The more you can personalize your marketing budget to your business, the more success you’ll see.
For some marketers, budget allocation falls to their senior management. This is known as the top-down budget approach. This doesn’t mean you should sit on your hands and wait for a number to be presented to you. There are ways you can proactively advocate for the marketing budget your team needs.
Creating a mock marketing budget with your projected benefits, ROI, and overall alignment with company goals can be a great way to get the greenlight on the budget you need. Doing the work to show your leadership exactly why you deserve a certain budget will increase your chances of having it approved.
This scenario is great for your professional development as well. Instead of passively sitting around waiting for a number to come to you, take the initiative and show some leadership. With a little extra work you can turn your budget planning into a collaborative partnership with your boss.
Project budget model
Some businesses choose to model their annual budget by breaking it down by project cost and using the sum of all project budgets to determine the final department budget.
This method works because it’s rooted in tangible numbers. Oftentimes, budgeting can feel a lot like guesswork. When you use the project budget model, you can use smaller, more definable numbers to make your forecasting more accurate.
One thing to be mindful of when budgeting with the project budget model is that project costs shouldn’t determine your entire budget. Don’t forget to account for things like marketing software tools, office equipment, membership fees, employee advancement budget, and more. These hidden costs can balloon your budget out of control if you forget to account for them. Be sure to double-check that all fees are noted in your budget.
The results-driven model takes significantly more time and care than other methods, but when done correctly it is the most effective.
This method starts with your team choosing your big bets first and then budgeting for them. Budget is decided on a sliding scale with the most important initiatives getting priority funding. This strategy works because it ensures every cent you spend is working in alignment with your overall company goals. The results-driven strategy eliminates spending exorbitant budget on vanity projects.
Here are some goals you should keep in mind when goal-setting:
Overall revenue goals
Customer retention percentage
Qualified leads per month
Monthly website traffic
This isn’t a method you can throw together last minute. The results-driven method works best when you tailor it to your team. Take the time to meet with key stakeholders about the company's goals, tailor your projects and marketing strategy to align with those goals, and then decide where to spend the money.
Each of these methods are popular for different reasons and you should feel free to explore different methods. Oftentimes, teams find the most success when they mix strategies from all of these methods to create their own unique budgeting strategy. Don’t be afraid to think outside of the box and try new things.
How to allocate marketing budget across channels
One of the tricky things about budgeting for marketing spend is keeping track of the different marketing channels your team manages. Each team manages different revenue streams and projects. The key to budgeting for your entire team is finding the right balance on program spend.
Getting an in-depth look at what each marketing function does will allow you to find cost saving opportunities. Here are some strategies you can use to fine-tune your budget.
Assess your marketing functions
The first step to allocating funds is defining your key marketing functions. Depending on the size of your marketing team, you could be budgeting for a number of different teams.
Sit down and take a lay of the land before you dig into the numbers. Understanding the landscape of your marketing team will not only help you decide where to focus your spend, it will make you a better leader.
Here are some marketing functions you should evaluate when creating your budget:
Brand and design (Avg. spend 5–15%)
Content marketing and SEO (Avg. spend 1–10%)
Communications and PR (Avg. spend 5–10%)
Digital marketing (Avg. spend 30–35%)
Event marketing (Avg. spend 2–5%)
Freelancers (Avg. spend 1-2%)
Market research (Avg. spend 7–8%)
Product marketing (Avg. spend 10–12%)
Social media marketing (Avg. spend 10–20%)
Video (Avg. spend 7–8%)
Note: The above figures are a composite from multiple sources, averaged out for ease of understanding. You are always encouraged to do your own research as these numbers can and will fluctuate.
This is also the point of the process you should create a list of any large, one-time expenses your team might have. For example, if the brand team is planning a website redesign, you’ll want to pad the budget to reflect that.
Budgets change annually because your company’s needs change. Always keep a pulse on which direction your company is growing.
Choose channels based on your audience
Every business juggles multiple marketing channels designed to reach their target consumer. If you want to get the most bang for your buck, choosing budget spend based on customer channels is the way to go.
Dig into the social analytics of your platforms, pull your email numbers, and check those webinar sign-ups. Which channel was the most effective at reaching your ideal customer in the last year? Where are your customers right now? Use this information to guide your budget.
If you’re working in a new role or a small business, you might not have a defined customer profile handy. Defining your audience can be as simple as answering a few questions and looking for patterns.
Ask yourself these questions to get a better sense of who your audience is:
What problems does my product or service solve?
Who are our current customers?
Who is my competition?
Why would someone need our product?
These questions should help you get a clear understanding of who you are trying to sell to and how your product helps them. Once you know those two things, allocate spend in your marketing budget to channels those people use.
This strategy is designed to spend the most money where your customers already hang out. Doing this allows you to get the right talking points in front of the decision makers.
Use an attribution model to measure ROI
Unless you know which of your marketing programs generate qualified leads and sales, you might as well be throwing money out the window. Spending money to make money only works if you can justify the spend with measurable results. Many businesses use an attribution model to carefully measure the ROI of their budget spend.
An attribution model is a set of criteria that determine who gets credit for closed/won sales deals and conversions. Anyone who “touched” the deal at any point during the process can be listed as an assist on the deal.
This is important to track as a marketer because it tells you which of your marketing programs convert to revenue. It also helps prove the value of your marketing efforts to senior leadership.
Most companies choose to automate their attribution system by using marketing attribution software. These programs are used by companies to determine how actions, events, or touch points during the prospecting and sales processes contribute to the success of their marketing and sales teams. These software options often come with all the bells and whistles, which leave you more time to focus on marketing and less time digging through the numbers.
Attribution software allows businesses to:
Track multiple marketing and communication channels (TV, social media, phone, email, digital advertising channels, etc.)
Capture data on the interactions between the company and its prospects or customers
Provide dashboards and visualizations for users to understand which activities performed better and why
Integrate with other software solutions used by sales, marketing, or public relations departments, such as CRM, email tracking, and demand generation tools
Be sure to do all of this work and planning long before you finalize the budget. Set up tracking for your marketing channels before allocating anything to your budget. This ensures you know where the best ROI lies before you spend a cent.
Spend more on high-qualified leads
Always spend more money on leads that are further along in the marketing funnel. Those few extra dollars might be the difference between closing a new deal and losing someone.
The marketing funnel is broken down into five different stages: awareness, interest, consideration, preference, and buying. The closer a marketing program is to the buying stage of the marketing funnel, the more money you spend.
Big budgets will go farther with people who are already engaged with your company and close to buying. They’ve been around long enough to know your business and this extra spend will allow you to closely target and personalize the experience for would-be customers. This doesn’t mean you should starve early stage marketing programs of funds. It just means you should be more strategic about how much money those early stage marketing efforts get.
Bottom line: spending more money on people who are more likely to purchase just makes sense.
Allocate funds for experimenting
Marketing budgets only work when there’s a little wiggle room. Think back on the last year with your team. How many unexpected projects, initiatives, or innovations organically happened that you hadn’t budgeted for?
If you budget every single cent at the beginning of the year, there’s no room to pivot when plans change. Put aside a little extra money as your own marketing rainy day fund.
Consider earmarking extra funds for the following things:
Replacing outdated or broken items
Unplanned program spend
The foresight will allow your team to be agile and flexible as the year unfolds, and it allows you the comfort of knowing you have a safety net. With these extra pockets of your budget built out, you decrease the chances of something happening during the year that you haven’t accounted for monetarily.
Diversify your big bets
Don’t make the mistake of putting all your money on one horse. It can be tempting to do, especially if you’ve seen big payoffs with a certain channel, but resist the urge.
Try to focus the bulk of your budget on a few big bets. Diversifying your measure of success gives your team more chances to succeed, and it prevents losing everything if you guess wrong.
Here a quick, five-step process for choosing your big marketing bets:
Start with your belief. What do you think are your biggest opportunities? What is your gut telling you? Write everything down.
Next, place your bets. If you decide to spend a certain amount of money on this big bet, what do you think will happen? What are the expected results? What benefit will it have?
Then, evaluate the risk. What are the bare minimum results you would need to mark this a success? How likely are you to get those results? What’s the probability of smashing your own expectations?
Ask yourself, do you have a back-up plan? If everything goes up in flames with this big bet, is there a way to pivot? Can you still hit your goals if this fails? Is it worth the risk?
Decide what to move forward with. Ultimately, going with your gut is the only way to decide what big bets are worth the risk. Don’t be afraid to ask for second opinions from other leaders if you have trouble making a decision.
After making your big bets, align them with your personnel and program spend before deciding on a budget. Always meet with other leaders in your company during this phase. Double-check that your goals align with theirs.
When you’re working with other teams toward the same goal, the chances of your big bets paying off increases. It also means you’re more likely to get assistance from those teams when you need it because they’re working on similar projects. It’s a win all around.
Stop spending when it stops working
Marketing budgets are not written in stone. If you notice that something isn’t working the way you projected, stop spending money on it. Reevaluating your budget every quarter and constantly monitoring progress (maybe with an attribution model, like we mentioned earlier), will prevent you from wasting money.
This also gives you the opportunity to reallocate money from failing programs to projects that are seeing results. This is a smarter way to spend money and help your team never lose sight of your goal. Don’t be afraid to pull the plug on something that isn’t working.
Make your money work for you
It’s easy to see your marketing budget as another task on your plate. Instead, try to think of it as an opportunity to invest in your team. When it comes to building the house your marketing strategy stands on, your budget is the foundation. Take the time to lay the groundwork and it’ll all pay off in the end.
Interested in finding places your company can trim your budget back? $40 billion is spent on unused SaaS tools each year. Manage your software spend, contracts, account usage, and compliance with G2 Track.
Lauren is a Content Marketing Manager at G2. You can find her work featured on CNBC, Yahoo Finance, and on the G2 Learning Hub. In her free time, Lauren enjoys watching true crime shows and spending time in the Chicago karaoke scene. (she/her/hers)