While on LinkedIn the other day, I went to the Answers section to see if I could help out my fellow members by answering questions that other people have. I came across one question asking, “How much money should I put into my marketing budget?” My first thought was that this person is going about this all wrong. How can you determine a marketing budget without knowing the goals of the business and the resources that are available to that business? There are a couple approaches to formulating a marketing budget.
The objective and task budget is where a business does not predetermine a dollar amount. They define goals first. Second, they define strategies and tasks, and then look at the costs associated to implement the marketing plan. Add up the total cost and the business has a marketing budget. One of the drawbacks of this type of approach is that the budget may actually end up being larger than anticipated.
Another approach to determining a marketing budget is by using return on investment (ROI). In this method, businesses start by establishing the financial goals they want to get from the marketing efforts. Then, determine a reasonable return on investment and work backwards. Let’s use an example. If a business is looking to have a goal of $500,000 in revenue, and use a reasonable return on investment of 4:1, then the marketing budget should be $125,000.
Of course there are more approaches to figuring out a marketing budget but some of these I do not suggest. On the fly marketing is when a business attends events or decides to try a new marketing technique as opportunities come up. Similarly, another approach is when businesses pre-assign a dollar amount for the year towards marketing and as marketing opportunities arise, it is then determined if they want to allocate that money to that opportunity, and some businesses do the all they can afford approach.
