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 on 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 that it is getting an adequate return on its investment. It can also help businesses 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 plan and manage a company's marketing activities, as it sets limits on how much money can be spent on different expense categories and allows companies to ensure that they are investing appropriately in their marketing activities.
- Obtain an adequate return on investment (ROI) in marketing activities. It allows businesses to set performance goals and measure the success of their marketing activities based on whether those goals are met.
- Deal with unforeseen situations and adjust the marketing strategy accordingly. An overview of finances is obtained, which helps to respond quickly and effectively to changes in the market or the company's financial situation.
- Effectively communicate the marketing strategy to other interested parties. 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. It establishes 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 to calculate 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 that is allocated to each spending category.
- The financial situation of the company . The marketing budget must fit the company's finances and must not exceed available resources.
- The prices of marketing activities . It is important to have a clear idea of how much the different tasks that are planned to be carried out cost and adjust the agreed money.
- The results of market research . Market research can provide valuable information about customer needs and preferences and can help determine which activities are most effective and where the most money should be invested.
- The competition . It is important to take into account what competitors are doing in terms of their marketing activities and determine the budget accordingly to ensure that the company is not left behind.
- Inflation and other external factors . It is important to take into account inflation and other external factors that may affect your marketing budget and adjust it to ensure 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 over 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 prepare a marketing budget, depending on the criteria used to allocate resources. Some of the most common types are:
- Budget based on objectives : 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. It is the most recommended method, since it allows the budget to be adjusted to real needs and measure the performance of the actions.
- Competition-based budget : This type of budget is based on analyzing what competitors do and allocating a similar or higher amount to maintain or improve market position. This method can be useful to have a reference, but it does not guarantee that you are investing efficiently or that you are differentiating yourself from the competition.
- Percentage-based budget : This type of budget is based on applying a fixed percentage to sales or profits and allocating it to marketing. This method is simple and easy to apply, but it does not take into account market variations or growth opportunities.
- Budget based on what is available : This type of budget is based on investing in marketing what is left after covering operating 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 either too optimistic or too pessimistic.
- Structured and detailed : It must include different items to classify expenses according to the type of action, channel, segment, product, etc. You should also specify the expected income and return on investment.
- Flexible and adaptable : It must allow adjustments and modifications to be made according to the results obtained and changes in the environment. To do this, it is important to regularly monitor the budget and compare it with key performance indicators.
Example of a marketing budget
Below is a simplified example of a marketing budget for a company that sells electric bicycles:
| Departure | Spent | Income | Return |
|---|---|---|---|
| Digital marketing | 20,000 | 80,000 | 4 |
| Sponsorship of concerts and gift of units | 35,000 | 70,000 | 2 |
| Corporate social marketing | 10,000 | 15,000 | 1.5 |
| Social networks 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 an income of €245,000 is expected to be generated and that the average return is 2.45.
It can also be seen that digital marketing is the item that has the highest return, while corporate social marketing is the item that has 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 must follow the following steps:
Define the buyer persona . A buyer persona is a fictitious profile that represents the company's ideal customer. It is important to have a clear idea of who those customers are and what they are 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 the 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 the available money to each category of expenses and ensure that the objectives 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 enhancing digital businesses in more than 7 countries and generating more than 1,500 million pesos.