Marketing budget: what it is and how to define it
A marketing budget is a financial plan that details the amounts of money a company plans to invest in different marketing activities over a specific period of time .
It includes a number of spending categories, such as advertising , promotion, public relations, market research, and product development, and sets limits on how much money can be spent in each category.
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It is used as a planning and management tool to ensure that the company is investing appropriately in its marketing activities and is getting an adequate return on its investment. It can also help companies deal with unforeseen situations and adjust their marketing strategy accordingly.
What is the importance of a marketing budget?
The marketing budget serves and has the following benefits:
- Properly planning and managing a company's marketing activities, as it sets limits on how much money can be spent on different spending categories and allows companies to ensure that they are investing appropriately in their marketing activities.
- Achieve an adequate return on investment (ROI) on marketing activities. It allows companies to set performance objectives and measure the success of their marketing activities based on whether those objectives are met.
- Deal with unforeseen situations and adjust the marketing strategy accordingly. Gain an overview of finances, which helps you respond quickly and effectively to changes in the market or the company's financial situation.
- Effectively communicate marketing strategy to other stakeholders. A marketing budget is a document that can be shared with other company departments, investors, and other stakeholders to inform them about the company's marketing strategy and how money is planned to be spent on marketing activities.
- Establish a framework for decision-making. Establish a set of parameters that guide decision-making as to which marketing activities should be prioritized and which should be postponed or discarded.
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Factors for calculating the marketing budget
To calculate a marketing budget, the following factors must be taken into account:
- The company's marketing objectives . It is important to have a clear idea of the marketing objectives you want to achieve, as this will influence the amount of money you allocate to each expense category.
- The financial situation of the company . The marketing budget must be in line with the company's finances and should not exceed available resources.
- Pricing of marketing activities . It is important to have a clear idea of how much the different tasks you plan to perform cost and adjust the agreed amount.
- Market research results . Market research can provide valuable insights into customer needs and preferences and can help determine which activities are most effective and where more money should be invested.
- Competition . It is important to consider what competitors are doing in terms of their marketing activities and budget accordingly to ensure that the company does not fall behind.
- Inflation and other external factors . It is important to take into account inflation and other external factors that may affect the marketing budget and adjust it to ensure that it remains viable.
Types of marketing budget
A marketing budget is a document that details the money a company plans to spend on marketing-related actions during a given period, such as a quarter or a year. The goal of a marketing budget is to optimize return on investment and increase sales and customer loyalty.
There are different ways to create a marketing budget, depending on the criteria used to allocate resources. Some of the most common types are:
- Objective-based budgeting : This type of budget is based on defining the objectives to be achieved with the marketing plan and estimating the costs necessary to achieve them. This is the most recommended method, as it allows the budget to be adjusted to real needs and the performance of the actions to be measured.
- Competitor-based budgeting : This type of budget is based on analyzing what competitors are doing and allocating a similar or higher amount to maintain or improve market position. This method can be useful for reference, but it does not guarantee that you are investing efficiently or that you are differentiating yourself from the competition.
- Percentage-based budgeting : This type of budget is based on applying a fixed percentage of sales or profits and allocating it to marketing. This method is simple and easy to implement, but it does not take into account market fluctuations or growth opportunities.
- Budgeting based on what is available : This type of budget is based on investing in marketing what is left after covering operational and financial expenses. This method is the least suitable, as it does not take into account the importance of marketing in generating income and can limit business development.
Characteristics of a marketing budget
A marketing budget must have the following characteristics to be effective:
- Objective : It must be aligned with the objectives of the marketing plan and reflect the strategies and actions that will be implemented to achieve them.
- Realistic : It must be consistent with available resources and market conditions, without being too optimistic or too pessimistic.
- Structured and detailed : It should include different items to classify expenses according to the type of action, channel, segment, product, etc. It should also specify the expected revenue and return on investment.
- Flexible and adaptable : It should allow for adjustments and modifications based on the results obtained and changes in the environment. To do this, it is important to periodically monitor the budget and compare it with key performance indicators.
Marketing Budget Example
Below is a simplified example of a marketing budget for a company selling electric bikes:
| Departure | Spent | Income | Return |
|---|---|---|---|
| Digital marketing | 20,000 | 80,000 | 4 |
| Concert sponsorship and gift of units | 35,000 | 70,000 | 2 |
| Corporate social marketing | 10,000 | 15,000 | 1.5 |
| Social media and SEM | 7.000 | 21,000 | 3 |
| Billboard advertising | 3.000 | 9.000 | 3 |
| Sponsorship of influencers and athletes | 25,000 | 50,000 | 2 |
| Total | 100,000 | 245,000 | 2.45 |
This example shows that the total budget is €100,000, that revenue of €245,000 is expected to be generated and that the average return is €2.45.
It can also be observed that digital marketing is the area with the highest return, while corporate social marketing is the area with the lowest return.
This data can be used to evaluate the effectiveness of each action and make decisions on how to optimize the budget.
How to create a marketing budget
To create a marketing budget, a company should follow these steps:
Define your buyer persona . A buyer persona is a fictional profile that represents your company's ideal customer. It's important to have a clear idea of who these customers are and what they're interested in, as this will influence your marketing strategy and budget.
Establish marketing objectives . Once you have a clear idea of who your customers are, it is important to establish clear and measurable marketing objectives that you want to achieve with your budget.
Determine the amount of money available . It is important to have a clear idea of how much money is available to invest.
Identify the activities you want to carry out . Once you have a clear idea of your marketing objectives and the amount of money available, it is important to identify the marketing activities you want to carry out and calculate the cost of each one.
Allocate available money to each expense category . Once you have a clear idea of what you want to accomplish and its costs, it is important to allocate available money to each expense category and ensure that your goals are met.
Written by Moises Hamui Abadi : I am an entrepreneur, founding partner of Viceversa and SoyMacho. After leading several digital businesses and advising several other businesses, I decided to form MHA Consulting, a digital marketing consultancy dedicated to growing and empowering digital businesses in more than 7 countries and generating more than 1,500 million pesos.