The old saying "50% of my marketing is working but I don't know which 50%" has never been more relevant than when trying to figure out your marketing budget.
Every marketer wants a bigger budget and every managing director wants a better and more predictable ROI on their marketing spend.
The more you have measured your marketing in the past the more accurately you can predict what you need to do in the future.
If you haven't measured the results of previous efforts in enough detail your budget depends on how much risk you are prepared to take.
No one can guarantee you results how ever much experience they have.
The best strategy is investment as much as you can afford, measure everything so you can quickly learn how to make continuous improvements.
"It is not the strongest of the species that survive but the one that is most adaptable to change"
In an ideal world
In an ideal world, every business would have a magic formula for their marketing that says, for example, very £1 invested in marketing you could guarantee £10 of revenue. If there was this guarantee as long as your profit margin allows for a 10% marketing budget then you could invest a £1m in marketing knowing for certain you are going to get £10m back. In this fictitious case if you want £500k in sales you need to invest £50k in marketing. If you want £20m in sales you need to invest £2m.
In reality, it is unlikely it will ever be this predictable but you should make it your mission to build the most reliable predictable marketing plan as possible.
Key factors in your marketing budget
How much you spend on marketing depends on a handful of key factors
- What is your goal?
- How much detail you have about the metric and conversion rates through your buying journey
- How many of your previous monthly sales targets has your company met?
- How well have you measured your success in the past?
- Do you know what specific things you have spent money on and measured the impact?
- How certain do you want to be that you achieve the goal?
If you can answer every one of these questions, then you will be able to have a more accurate answer to the question. The more you don't know the more margin for error you are going to have to allow for (read: more money!!)
If you think about a new customer journey from beginning to end you could simplify it down into 3 stages. You may choose to use different ways to break down the customer's journey such as AIDA (Awareness or Attention, Interest, Desire and Action) or TOTF/MOTF/BOTF (top, middle and bottom of the funnel). Whichever way you do it be sure to factor in what needs to be done at all of the different stages not just on some at the expense of others. If you neglect any one stage it could spell the demise of your company.
As an advocate of customer obsession, I always try and look at it from the customer's perspective rather than the business's perspective. So it could be something like this.
- Find new people you can help
- Build a relationship with them by helping them some more
- Help them decide what to buy
You can and should break it down into more stages. It will help you better understand and people at different stages of the buying journey. If you haven't done this before then start simple and build up to that.
A simplified example of a marketing budget
In this fictitious example for Widgets Ltd, I will make the following assumptions to make it easier to understand. In reality you will probably need a bigger budget because you will need to do more activities at all the stages of the buyer's journey. Your conversion rates will be worse which will mean your budget needs to be higher.
- You have a £5000 average sale
- You already have Google Analytics and a CRM system set up to track your metrics (we love Hubspot but compare it to some others)
- It takes 8 touch points before they will buy (1 ad, 6 emails and 1 page view of buyers guide before purchase)
- You have a sales target of generating £100,000 in revenue so need to make 20 sales.
- You will use digital advertising to get in front of new people
- You will use email marketing to build a relationship with people
- You will use your website to educate people about your products and your competitors
- You don't have any historical metrics to use to base your marketing budget on
- THE BIGGEST ASSUMPTION OF THEM ALL (which will make or break any plan) - The marketing that you produce at each stage is good and has a good conversion rate (you probably will experience lower conversion rates unless it is something you have measuring and optimising previously)
|How many people move to the next stage?||How many people?|
|Help new people||25,000|
|1 in 50 (2%)|
|Help them again||5,000|
|1 in 10 (10%)|
|Help them buy||500|
|1 in 10 (10%)|
Help new people
- Activity in this plan - Digital ads
- Goal - Offer something of value to a potential buyer of your product/service
- Other activities could include - Organic search traffic
Help them again
- Activity in this plan - Monthly email
- Goal - Build a relationship with them by getting them to opt in to receive something they value from you regularly
- Other activities could include - Build a subscribed audience social media etc, remarketing adverts
Help them buy
- Activity in this plan - Read buyers guides on your website honestly comparing you to other options
- Goal - Help them decide if they should buy from you or a competitor (HINT: you are not right for everyone!)
- Other activities could include - Sales people, configurators, online quote builders
In our fictitious example for Widgets Ltd, we need to work out the key components of the marketing plan. For the sake of simplicity, we are going to use only one activity at each level. In reality, you are going to do many things at different levels which complicates how you figure out your budget but I want to start simple and build on it.
We have 3 goals to achieve so let us break them down
- Help new people using digital ads
- Help people regularly using a monthly email
- Help people decide what do buy with the best buyers guide on the internet for your product
Help new people using digital ads
There are lots of different ways to get in front of new people. For this simplified example, I am just going to use digital advertising. There are many different ways to advertise online but the two biggest are Google and Facebook.
The key to getting this bit of the campaign right is to reduce the waste. You need to balance the cost of getting someone to click on your advert and the number/quality of people you can get to click who are interested in taking the next step you offer them.
What is “cost per click”?
There are a handful of ways digital advertising is charged. Cost per click is one of the most common ways. You pay £X per click of someone who wants to see the thing you offer them in your advert.
For this example, I am going to use a £2 per click average cost. You can learn more about how this number might be different in your industry.
One campaign may be able to get 100 people to click on something and 1% of those people take the next step. You may also be able to get 20 people to click on an advert and 10% of them take the next step. If the cost per click (CPC) in the first example was £1 it would cost you £100 to get one person to take the next step. The CPC for the second example could be £5, it would generate less click but of the people who click more would take the next step. The cost to get someone to take the next step in the second example is only £50. Half of what the first campaign costs you.
Google has a range of different types of adverts including many of the same as Facebook eg Display ads, remarketing, video ads etc.
Its strength is being the place to go when you want to buy something. Google knows this is the most competitive adverts so they often are the most expensive.
The biggest strength that Google has is that they own the attention of people who are ready to buy. This means you are looking for the most direct to people who are ready to buy then it a great place to spend your money.
Google knows that they have customers ready to buy and they put you in an auction for the attention of those people. Although the average cost per click is $2.69 it varies by industry and some industries can be more than double this. The purchase intent affects the cost too. “Widget discounts” would cost more than “types of widgets” because in the first instance the buyer is more likely to buy there and then. The more competitive the keyword you want your advertising to be shown against the more expensive the CPC is. Some industries such as Finance, Tech, B2B service and legal can easily pay £100 per click for the most competitive keywords.
What Facebook lacks in terms of understanding different levels of purchase intent like its rival it lends itself better to find new people who have never heard of you or may not even know they need what you sell so you can start building a relationship with them.
Although Facebook has been involved in some privacy scandals and has removed targeting via 3rd party data sources such as Experian purchase history and preferences. It has one of the most hyper-targeted ways of running adverts based upon a huge number of factors included demographics, interests, life events, lifestyle, financial, their connections, behaviours and retargeting (people who have already clicked on your ad or visited your website)
They have arguably the most specific ways of targeting adverts which if done right is a very cost-effective way of getting in front of the right people.
It is a great way of building an audience and testing how a specific audience like your value proposition or offe
If you want to buy something you go to Google not Facebook. If you want to target people who are ready to buy you might be better to spend your ad budget with Google.
In our experience, if you target people with ads who have never heard of you and ask too much from them (attend an event or sign up for something) there is no trust built up. You probably want to start with a more simpler call to action or even just get them to consume some of your content before you ask them to do anything.
Cost estimate: 25,000 clicks at £2 each plus 4 hours per month management = £52,880
How I calculated the cost
There are two elements of advertising cost and management of ad budget including optimisation / reporting.
In this simple example, the campaign needs 25,000 clicks at £2 each so the ad budget is £50,000.
For the management, you will probably want to allow at least 4 hours per month. The more management time you allow the potentially more “bang for your buck” you can expect. The person or company managing your spend can run more experiments and tests to try and get better results from the ad spend.
If you are outsourcing the management of your ad management then you might expect to pay around £80 per hour for this service. Some may charge a percentage of the ad spend eg 10-20%.
For this example, I am going to use 4 hours a month at £60ph so £240 per month or £2880 per year.
Help people regularly using a monthly email
Although an email newsletter isn't the most cutting edge marketing techniques. If you get it right it is a great way to get someone's permission to contact you and stand a good chance of them reading it.
Everyone says or thinks they are busy so time is at a premium. If you are going to start an email newsletter to build a relationship you need to think about what you could send to people that they can't wait to receive. The best example I have come across is the Gaping Void daily/weekly email. I want to open that email. Everyone’s email inbox is full of stuff. To stand out you need to think long and hard about why somebody would care about what you have to say.
You need to come up with a strong value proposition to get someone to give you their email address in the first place, then you need to provide a huge amount of value. Possible ways you could provide value (NONE of these includes selling your stuff - it is unlikely many people would subscribe to that)
- Share the news articles in your industry in a quick and easy to understand format.
- Share some of your expertise on a problem they might have
- Share some ideas which inspire them to be better at what they do
Remember to put the potential customers' needs at the centre of what you do. Your goal is not to sell them what you sell, your goal is to get them to know, like and trust you enough to care what you have to sell.
Cost estimate: 12 monthly emails at £695 each = £8,340
How I calculated the cost
- Senior team member at £100 ph 6 hours
- Junior team member at £15 ph 3 hours
- Software to manage the emails if you haven't already got it £50 per month
To write a high valuable email to send to your audience it is not something a junior member of the team can do alone. They will be able to help with the admin and logistics of getting an email sent out once a month but they may not be able to write the content alone.
If for example, you could choose to make a monthly email summarizing the key points from the best 5 articles you have found that month for people in your target market. You would need to source the 5 articles which might mean you need to read 30 articles or more each month. If each article takes 10 minutes to read and digest that is 300 minutes of reading time or 5 hours of the senior person’s time. Then 30 minutes to explain why those are the best 5 articles to the junior person and what the summary is, then 30 minutes to review the email and provide feedback.
The junior team member will need 30 minutes for the initial brief, 60 minutes to write up the content transcribed, 30 minutes to create the email in the email system, 30 minutes to review the email and make edits. 30 minutes for email admin - manage subscribers/unsubscribers, manage replies, analyse performance to optimise and report on performance.
Help people decide what do buy with the best buyers guide on the internet for your product/service
The problem most businesses have when making their website content is that they think the goal is to convince everyone who needs a widget to buy their widget. This doesn't work for two reasons
- By trying to appeal to everyone you don't appeal as well to the people who should buy your product
- You convince people to buy your product when they really should have bought a different product and they end up an unhappy customer who tells their friends your product isn’t any good
Your goal should be to create the most helpful resource on the internet for anyone who wants to buy a widget. Irrelevant of if they should buy your widget or not.
You should feel comfortable sharing the reasons why people shouldn't buy your product as much as they should.
In the video below, the founder of a company published on his website all the things he thought was wrong with his products. The sales manager thought he was crazy. Every one of their competitors printed out all the problems his products had and showed them to all the potential buyers of his products. Instead of putting them off buying his products, they asked the competitors to provide a similar list. As bad as the founder's list was it wasn't as bad as his competitors, most of his competitors wouldn't even provide a list.
If you embrace this level of transparency and confidence to say this what we offer, we are well suited to this type of person but not so well suited to this other type of person you will win better customers.
A customer who buys from you for the wrong reasons is a ticking time bomb waiting to explode with negative word of mouth marketing for your business.
You need to understand the market that you operate in and why someone would choose you or your competitor. If you don't then how do you expect a customer to know why they should buy from you over your competitors?
Some examples of buyers guides and how 3 of the 4 could be improved:
- Hubspot vs Marketo on Hubspot.com - Only compares 2 options and focuses on things that Hubspot can offer that Marketo doesn't in comparison tables. An article on this forum offers the counter-argument
- easyStorage vs 3 competitors on easystorage.com - It makes a strong case for using easyStorage but they would earn more trust by saying who they might not be the best fit for eg someone who wants to store a piece of art worth a million pounds - there might be a more suitable option
- McAfee vs 3 competitors - In this example McAfee defines what you need and says they offer more than their competitors. How does a consumer know what they need to know if the features they offer are right for them?
- Swimming pool comparison (fibreglass vs concrete vs vinyl liner pools) on River pools and spas manufacturers website. These guys are a manufacturer, seller and installer of fibreglass swimming pools. They do a great job of summarizing who should buy each of the different types and include the downsides of the products they sell. This does a pretty good job not sure it could be improved?
Cost estimate: One resource produced and improved quarterly = £2,575
How I calculated the cost
To make this article you are going to need to become your industry's greatest expert in all your competitors. You are going to know your competitors as well as you know your products.
If you have 5 main competitors you will probably need to spend 5 hours researching each of those competitors then probably another 10 hours writing up the information. You will probably need to spend 30 minutes a quarter researching those same competitors plus adding any new ones that pop up. You will need to update your original resource with the new information.
Original creation 35 hours plus research and 3.5 hours each quarter on research and update plus 6 hours a year researching and adding a new competitor in the market.
51.5 hours a year at £100 per hour - £5,150 per year
In a small business, this task should probably be undertaken by the person in the company with the most knowledge about the industry and the market which I will assume is the owner/founder hence the £100 per hour cost.
Simple example budget total
In this fictitious example to generate £100,000 in sales, you need to spend 20 sales at an average sale value of £5,000 you would need to spend £66,370.
This is a lot of money to spend to generate the desired sales target. I am sure it would make any business owner fall off their chair.
You may want to read the next section about how to reduce the marketing budget.
How to reduce your marketing budget (HINT: conversion rates)
This overly simplified marketing budget is based on A LOT of assumptions. That is the biggest problem. When you assume you make an ass of u and me (ass-u-me). If you have data and insights to base your marketing budget then you can make much more informed decisions and in the very worst case better assumptions.
A leaky bucket means a leaky budget
One of the ways to reduce the budget is to get better at what you do. The most important metrics are your conversion rates. There are a million articles on the web about improving your conversion rate but here are the two most important things
- Get the right people to your website in the first place
- Have a strong and compelling value proposition at every step of the buyer's journey when you someone to take an action
In my very oversimplified example your current conversion rate are possibaly not that good so you might need to budget more.
If all your conversion rates were 10% worse your marketing budget would need to increase by £9,293 or 37%.
If your conversion rates all went up by 10% you would be able to spend £15,706 less or reduce your budget by 63%.
In the real world, you may not have extra budget to pay for the crappy conversion loss so you would probably just take a hit on the sales you generate.
If you can improve your conversion rates it means you can either achieve a higher sales target or spend the money you save on some bean bags and a ping pong table you see in all the cool offices in companies with spare cash.
Even if you have the best website that converts 1 in 2 visitors to a customer you still are losing or wasting 50% of the opportunities. In reality, the conversion rate of your website from a web site visitor to a customer is probably 1000 to 1 or more. Meaning if 10,000 came to your website you would get 10 customers. This might be a good conversion rate if you sell high-value low volume products. For most businesses, it means your marketing isn't working because 99.9% of your website visitors are not buying anything.
Rubbish in, Rubbish out (swap “rubbish” for your choice of expletive)
There are plenty of cheap tricks to increase the number of people who you can get in front. I won't even bother explaining because almost all of them fall into the category of clickbait and are all a waste of time.
If you get your website in front of people for any other reason other than they need help or have a high likelihood of needing your help or assistance it is a waste of your efforts. That pair of eyeballs will never buy your widget. They only falsify your reporting.
The conversion rate at any point will be affected by the quality of people you put in at the top. The further they get through your funnel the more time, effort and resources they will have cost you. There is no point quoting a company who are a bad fit, it is a waste of time. You would have saved everyone time and effort if you told them at the start they aren't a good fit.
Bad fit potential customers are a huge waste of time and money
Your buyer's journey will probably not be as automated as the example I gave you will have very expensive parts of the buyer's journey involving real people. If a sales person’s base salary is £30k and has the capacity to do 5 quotes a week then if you are giving them bad fit leads it is costing you money. If only 80% of the leads are a good fit then the bad fit leads are costing you £6k a year in wasted time. You might be able to generate 25% more sales just by not giving them the 20% of bad leads.
You value proposition is critical to predicting your marketing budget
There is a big difference between value and price. Price is what someone pays and value is what they get.
You may think you have a strong value proposition but in reality, even if you as the owner of the business have a clear idea of what it is can you simply articulate it to ANYONE? Could all your staff tell you what it is? Could your customers explain it? Could your potential customer explain it?
Even if your potential customer does understand it does it motivate them to want to buy from you?
In reality, it is probably not as strong as you think it is.
You value proposition needs to simple enough so that anyone could understand it and know who it was relevant for.
If someone in the street asked you where to get cheap but good furniture from I would be surprised if anyone doesn't think of Ikea. It doesn't matter if you like Ikea or if you shop there you would still recommend Ikea.
If you specialise in making the best left handed widgets for electricians. A right-handed doctor may never need a widget but be sure if he ever met a left-handed electrician who needed a new widget he would probably tell them about you.
In summary - how much should your marketing budget be?
TLDR; It depends…….on LOTS of things
If Charles Darwin was a CMO he would say "its not the strongest or the smartest companies that will survive but the ones who are the quickest to improve"
Your marketing comes down to how much experience you have got of doing exactly the same thing before for the same company. The same campaign in the same industry but for a different company gives you some idea of what might work but offers no guarantee.
You should consider is how much risk you can afford to take.
If you need to make £1,000,000 sales else your business will go out of business then you probably should invest as much as you can to minimise the risk of failure. If it is that important and you can afford it id invest £1,000,000.
If you have a target of £1,000,000 but your business would survive if you only made £600,000 you don't need to take the risks to hit your £1m target. Put together a reliable plan to hit £600k and slightly less certain plan (read: cheaper but riskier) to hit the £400k remaining.
Here are a few categories of circumstances and how it might affect your marketing budget / plan.
You hit your target and you DID measure what worked
You already know your budget. Bear in mind that the market and the wider world is changing faster than ever. What worked last year might not be as effective this year. Budget some extra for experiments to try and improve on your results and minimise the risk of the same plan not working.
How much: Previous budget plus 10% for tests plus percentage you want to grow by in the period
You hit your target and you DIDN’T measure what worked
You may have hit your target but you have no idea how. You ran a bunch of activities which could have been spot on and worked perfectly but equally, they could have all been a total waste of money.
An external event may have gone in your favour which you didn't know about. Some examples:
- A competitor might have gone out of business or stopped selling their competing product lines.
- A competitor’s website got penalised for using dodgy things to promote their company and their website dropped down the rankings and you replaced them
- You may have been promoted somewhere such as a media publication, review or online forum which is sending a huge amount of people to your business instead of a competitor.
If you don't know what works I would recommend measuring everything that works plus add some extra to give you as bigger safety margin as you can afford if your target is important
How much: If you can afford to fail then you might be ok with the same amount plus 10% plus you target growth percentage. If you want to remove the risk I would budget up to 100% more and measure everything. The following year you will be able to budget more accurately and possibly reduce your budget when you know what works.
You DIDN’T hit your target and you DID measure what worked
If you know that somethings worked then it is probably a good idea to try and do more of those things and less or none of what didn't.
You should budget some resources to run some tests to try and improve upon what you did before which worked to try and improve the results
You should diversify your plan a little to try and find some other ways to meet your targets with a good ROI to try and help you achieve your target this time.
How much: If possible and you can achieve more of what works and hit your target then do that assign the last budge to the stuff that works plus the percentage you want to grow by. If you can not fully achieve your goal by just doing more of what works then allow a 50-100% margin for error on the new things you are trying.
You DIDN’T hit your target and you DIDN’T measure what worked OR you are doing it for the first time
You don't have any internal data to go on so you are going to need to try and find some industry data to base your plan and budget on.
You are going to have to make some gut decisions about where to start.
The most important thing you can do is start measuring EVERYTHING you do. Put tracking links everywhere you do anything. It is pretty easy to do with your online marketing efforts because if you give someone a long messy link to click on it is not a problem but if you put the tracking links anywhere offline you should measure the traffic that source generates. You can do this by creating a shorter memorable which automatically redirects someone to a longer tracking URL and then only using that short URL in one place so you can measure the effectiveness.
Any flyer / print ad / business card / direct mail / presentation / signwriting should contain a unique URL. For example, if you have a CTA of request a free quote you could create multiple URLs to get you to the same webpage eg url.com/quote, url.com/request, url.com/freequote, url.com/getquote, could all forward to url.com/request-a-quote but each with some unique tracking information on the end so you know where they can from.
What is a tracking link?
A tracking link is a website page url with some extra information at the end of the URL which can tell your analytics tool where people have come from when visiting your website in reports.
You need to learn as quickly as possible what works and what does not work. Don't change what you are doing before you have enough data to make a decision but you are going to need to improve as much as you can as often as you can.
How much: As much as you possibly can afford. You have very little data to predict an amount. Use your revenue goal as a starting point. Depending on how established you and your market is then you might need to invest 50-500% of your revenue goal to attract enough clients. As always MEASURE EVERYTHING!
If only someone would simplify my marketing so I could budget more accurately!
The key to using marketing to grow your business is
- Have faith that small continuous improvements can make a huge difference whatever your goal
- Maximise productivity and reduce the time required to achieve your goal by focusing on the 20% that gets you 80% of the results
We believe that small, continuous improvements are the most sustainable way to grow any business.
We help SMEs to get better marketing done in less time
Our marketing plan provides a week by week guide to made 1% improvements every week without the help of an agency.
If you would like to learn more about our approach including how much you would need to budget then please watch the webinar below.