Home » Marketing » Marketing Budget: How much should a company invest in marketing?
Last edited: January 11, 2022
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The marketing budget is usually made once a year for the coming year. In this case, the marketing budget typically defines the maximum amount that can be invested in marketing and some kind of preliminary budget allocation.
The marketing budget is therefore, at its simplest, one management tool that seeks to set the financial framework for marketing decisions. Such financial guidelines are indispensable for marketing as no one has bottomless pockets.
However, the problem with marketing budgets often becomes that the guidelines become paths that cant be moved away from, regardless of all the information that marketing will get during the budgeted period.
The first problem is quite rare outside of corporations when considering in-house marketing. However, this is quite common when using agencies. The marketing agency has a certain budget and it is used regardless of the situation.
The latter problem is rarer, just because marketing rarely produces such short-term results that it would be possible to increase the marketing budget quickly.
Sure, there are situations where marketing budget is underestimated in order to expect reasonable results, but in these cases, problem is not in budget flexibility, but incompentent budgeting.
As stated above, a marketing budget basically creates the financial framework for marketing actions. In a perfect world, financial frameworks would not even be needed, as each marketing decision would be assessed based on its own merit.
However, in the world we live in, every company representative does not have a complete knowledge of the potential effects of the various measures and the company situation. There is simply so much information that affects decision making that it makes no sense to burden all employees with all the information. Instead we create frames and make things a little simpler via budgeting.
Of course, it is difficult to take a universal position on a company’s financial situation. But the rule of thumb regarding the marketing budget relative to the financial situation of the company is that the less cash and cash equivalents and cashflow company has, the more short term the marketing should focus on. If the cashflow is steady and company is sitting on a lot of cash, marketing can be a long term game.
Sure, focusing on short term benefits should only be a temporary situation, but if you are running out of cash in a month or so, it is pointless to think about campaigns that will be effective in three years. Obviously sometimes you just play high risk high reward, but mostly you should change your marketing based on the financial situation of your company.
The objectives define the marketing measures and thus the marketing budgeting quite centrally. Here too, it is difficult to give universal guidance, but the clearest distinguishing factor is the goal of growing or staying where you are as a company.
If you want to stay where you are, you need to invest in marketing only enough to keep up with the market. If, on the other hand, you want to grow, you should think a little bit further.
Different companies start from different starting situations and different starting situations determine what to focus on. If the basics are not yet put in order, a little more chips are required to get results. Conversely, if the basics are in order, you can create great results even with small budget.
Here are the essential points that should be in order to even think about results. The list does not include self-explanatory stuff, such as whether the company has some kind of visual appearance, whether there is a website etc. The list disassembles step by step things that should be put in order:
A typical problem for companies is getting people interested but not being able to get leads and sales from interested people. Good groundwork is done, but at the crucial moment, the potential customer is allowed to drain to the competitor.
In the case of sales presentations, this means that the presentations needs to have enough “weapons” to close enough sales. Testimonials are the most common and most effective “weapon” for the salesrep.
On the marketing side, this means that there is material on the website that people are looking for before making a purchase. Typically, before making a purchasing decision, one wants to ascertain the suitability of the service to themselves and thus often seek, for example, “Experience from Trustmary”. Our own offering, and especially the production of customer stories, aims to solve this very problem. Produce authentic customer experiences for the video while also providing the testimonial in text format. People get support for their buying decision and Google loves it.
If the content required to support your purchase decision is in order, you should consider the purchase path of your website. What goals the website directs to when potential customer lands on different landing pages, and how to move them towards sales.
A typical problem for companies is investing in content production and distribution, but not getting sales out of website visitors.
Content should be built along the entire purchase path to support the customer’s purchase decision. For example this blog is not about our services, but we would like to be in the mind of our customers when they are doing budgeting for marketing.
When thinking about content throughout the purchase path, your website will eventually become a tireless customer service team that constantly prospects new customers and answers their questions.
If all of the above are in order, then you should start focusing on content distribution, which is in practice often paid advertising. How to get potential customers to your website and from there towards buying decision.
… Actually, the process is not so linear, but different things are done overlapping and crossed, but the priorities in terms of budgeting are clear.
Producing the materials required to support your purchasing decision, for example, on a monthly basis with us, requires something between $ 250 and $ 1,000. If your company has only one clear target audience, investing $ 250 a month will get the basics right.
Refining the purchase path on a website typically takes a few tons, but bigger sites certainly take more. When you buy from us, you will receive guidance on how to develop your websites conversion optimization, as we offer free online courses and our Customer Success team helps you with implementation of everything.
Content production for the entire purchase path often requires quite a long-term investment, but often returns the investment in the long run. Typically, groundwork, that is, defining different topics based on data (keyword research), costs about 500-2500 € and then content production on top of it. Now, if you think that the groundwork will result in 90 sensible search terms, plus 10 other content needed to build a purchase path, you could accomplish that by publishing 2 blogs / pages every week for a year.
For example, we publish 2 blogs a week in Finnish and English and one more in Swedish. Now, if you think that a blog would cost $ 80, our monthly cost would be roughly $ 1600. Now I can’t say the exact cost of our blogs, considering all the time spent on them, but that $ 80 per blog is not too far from the truth.
If one were to think that a company would want to publish in only 1 language, and the blog would cost $ 100 a piece, the same would cost around $ 800 a month.
Content distribution often costs quite a lot. If content is constantly being produced, you should also reservce some resources for search engine optimization (internal link development, external link acquisition, etc.), for example 300-500 €. And in addition to that the work of buying social media advertising and running social media, for example $ 1,000. Then on top of that are the media budgets themselves, which can be estimated at € 2000 per month.
In addition to this, of course, you usually need some resources to manage your marketing.
In that case, the end result would look like this in terms of monthly prices:
– $ 750 / month materials to support purchase decision (three different customer profiles)
– $ 100 / month Finishing the Purchase Path of a Website
– $ 800 / month Content production
– $ 300 / month SEO
– $ 1000 / month paid advertising optimization + social media
– $ 2000 / month media budget
– $ 1500 / month marketing management
= $ 6,450 / month
= $ 77,400 / year
In practice, it is likely that the different types of work are split between one person’s wage costs and outsourced services x. But in any case, this gives you a little indicative picture of how marketing budget can be thought of.
If now marketing seems to be generating an amazing profit, then it is clearest to raise your budget typically by increasing your media budget up or alternatively producing more content.
Sometimes the 5% rule is used as a rule of thumb in marketing budgeting. This is quite sector specific but means that you invest 5% of your revenue to marketing. With that rule of thumb, the example budget could be real budget from a company with 1,5M$ in revenue.
The marketing budget is intended to serve as a guide for marketing managers. However, the guidelines are only guidelines, not the train tracks that should be followed no matter what is the situation at hand.
It is difficult to give any universal guidance on how to allocate a marketing budget because it is so case-by-case, but in a particular sectors, similar things apply. This blog used an example that could be the right budget for SME in European countries, which has some basic things in order, but much still to be developed.
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