What is the marketing budget? It is the sum estimated to implement certain communication strategies which, in a given period, make it possible for the company to achieve the set objectives. In short, the marketing budget is the economic resource expected for corporate marketing spending. But why and how much to invest in marketing?
To establish the marketing budget, it is necessary to have a clear what the company’s objectives are, to know the competition in the sector and the resources available. Effective spend management is essential to maximizing your return on investment (ROI) and achieving your marketing goals.
Among the various types of budgets, it is possible to list those diversified according to the time division (annual, quarterly, or monthly) and those attributable to the various sectors, such as:
- Advertising: Spend on ads and advertising campaigns across channels, such as television, radio, print, social media, and online platforms.
- Public Relations: The costs associated with managing media relations and communication activities aimed at creating a positive image of the company and its products.
- Market Research: Funds devoted to market research, surveys, data analysis, and other activities aimed at better understanding customers, competitors, and the industry.
- Events and Trade Shows: The costs of attending trade shows, conferences, and other industry-related events as an exhibitor or sponsor.
- Human Resources: Expenditure on marketing department personnel, such as salaries, bonuses, and training.
- Marketing materials and tools: costs for the creation and production of promotional materials, such as brochures, signage, and merchandising, as well as the purchase of software or tools in addition to online marketing expenses.
This article will explain how to estimate the costs of a marketing campaign and what the main characteristics are that make investing in digital a revolutionary event. Also, if you want to understand how it works and what a marketing plan involves, I suggest you take a look at the Digital Strategy Course
How to build a marketing budget in 4 steps
To define the marketing budget you need to proceed step by step according to your business. What are the budget goals? That of investing the economic resources allocated in such a way as to be able to achieve the results hypothesized in the analysis phase.
Each action must be coordinated through a strategic orientation developed by the team in the study phase, moreover, it is necessary to adhere to a time frame that allows the effectiveness of the choices made to be measured.
Understanding how to divide the marketing budget is the result of a careful study that examines various factors: marketing objectives, situation analysis, market segmentation, competition, strategies, performance history, available capital, and monitoring, and evaluation of the actions taken. It is possible to summarize this process in 4 steps.
1. Create a strategic marketing plan
Developing a marketing strategy is a complex analytical process and requires a real plan. But what is strategic marketing based on? Marketing is first and foremost analytics. The goal of marketing is not simply to sell or advertise. Talking about strategic marketing means establishing a series of operations, calibrated over the medium to long term, which can make your company’s business competitive. To do this you need:
- Understanding consumer needs;
- Create solutions (products or services) able to satisfy these needs;
- Notify the user of the existence of the solution and how to acquire it.
How to optimize marketing investments? Check out the course schedule!
Marketing has the ultimate goal of satisfying the customer by providing him with what he needs and, at the same time, meeting the company’s expectations. How can we know how to satisfy a customer if we know nothing about that customer, his wants, and needs?
How can we determine corporate goals without taking into consideration who our company is? What does it produce? What market niche does it operate in? To answer these questions it is useful to resort to a marketing audit. This expression refers to the analysis of the reference market in which to position a product and what weight the marketing budget must have on turnover.
There is a difference between strategic marketing and operational marketing: as can already be seen from the same terms, the first is analysis, and the second concerns the operational steps, the tactics that put into practice the strategy that emerges from the analysis. What is the difference between the two is difficult to define, because they are closely related. They both reflect similar themes but from different points of view.
What is meant by business objective? What is a micro-conversion? A goal can be translated into a specific action that we want the user to perform and we call that action conversion.
Usually, the achievement of a marketing objective is not a simple and linear process consisting of a single action but takes the form of a path that starts from the discovery of a product/service by the user up to its eventual purchase.
This path is called a funnel and is made up of several stages that we will call micro-conversions. These intermediate moments lead to the final realization of the macro-conversion, i.e. the main objective.
For example, in the case of an online store of cameras and photographic accessories, e-commerce is associated with a blog where enthusiasts and professionals can find useful topics and updates on new products in the photographic field. You can subscribe to the newsletter to receive additional content.
One of the main objectives of the business is to earn, but selling cameras through an online shop will not be enough as a strategy. By saying that the global objective of the business, the macro-conversion, is deconstructed into various “micro-conversions” we mean that the sale is only the last step!
First, you need to understand how to place the product in the user’s mind, and how to attract potential interested parties until they reach the cart page. Therefore, for the online camera store a goal included in the business plan could be:
- Stop time capturing individual moments to build a history with everyone’s stories. As? By selling quality products to photography enthusiasts.
Let’s now translate the goal into the marketing plan assuming a couple of strategies and tactics that could make our goals concrete:
- To convey the concept of photography as a means of making history for everyone, we could create a community on Facebook to encourage interaction between users and at the same time spread our message.
- To sell, you must first present yourself to the public by increasing awareness of the brand with, for example, banners on sites relevant to the subject or by disseminating useful advice and best practices on the blog.
The possibilities for action are varied, these are just a few examples regarding the early stages of the funnel: creating awareness. Every action has a cost to the company, that’s why allocate a marketing budget.
If you are now wondering what the first phase of the marketing budget process is, you are in the strategic phase and then move on to the operational one. Deciding on the right budget is just one of the points in the larger planning scheme, which can include the drafting of various useful documents, such as the business plan and the marketing plan. To understand how much to invest in marketing, it is necessary to understand how to structure the investment plan.
2. Define the parameters for the marketing budget
What are the phases of the marketing plan? Defining it is not a simple matter and there is no fixed rule. There are numerous parameters to take into consideration and they help to explain why a marketing budget is made.
- Company size: small, medium, large.
- Its scope: local, regional, national, or multinational.
- The type of company and the market niche in which it operates.
- Turnover and economic availability.
- Fixed expenses: wage costs, equipment costs.
- The goals: expansionary? Protectionist?
- Timing: How much time do you need to achieve a certain goal?
Identifying the ideal investment consists of a rather complex analysis that involves various departments of the company. Everyone, with their skills, brings together data and information that will then be evaluated together in a more global vision. Marketing budget optimization is a team effort.
As mentioned earlier, for those involved in business it is inevitable to come across two fundamental tools: the business plan and the marketing plan.
What is the difference between a business plan and a marketing plan? We could say that the business plan gives a global vision of the company and maintains the focus on the medium-long term, while the marketing plan focuses on the strategies to be used in the short-medium term.
The latter could perhaps be defined as the application of the former: it translates the company’s ultimate goal and deconstructs it into various micro-conversions that can be reached through strategic practices.
3. Choose the right method
How to build a marketing budget? There are several methods for estimating the expenses that will be incurred in marketing campaigns:
- Calculation method based on EBITDA. This method takes into account the company’s ability to generate wealth. It’s quite easy to calculate, but it may be inaccurate because it doesn’t take into account the specificity of the goals.
- A method based on competitors’ budgets or a method based on the industrial sector to which your business belongs. you do as others do. In addition to being data that is difficult to find, here too there is the risk of ending up ignoring corporate differentiation, an essential factor.
- All-in method: invest everything. In an aggressive method, typical of venture capitalists, everything is invested except expenses.
- Very simple top-down method: the management decides the marketing budget.
- The calculation method is based on objectives, i.e. a method that takes into consideration the business objectives: each objective implies different action strategies to be achieved, and each strategy will involve different expenses.
You can find various advice on what is the right percentage that indicates how to calculate the marketing budget. For example, most indicate an average of between 5% and 20% of gross or forecast sales. On average, a quarter of the available capital is invested in marketing campaigns.
Of course, you can decide to invest 20% of the turnover because it is the average percentage recommended by most of the players in the sector to which you too belong. But doesn’t it seem a bit simplistic to choose based on a general average when, on the other hand, every business is unique? Every calculation and every decision should take into consideration the subjectivity of that company and its peculiarities. The marketing approach that works for your competitor may not work for you!
When we talk about a method based on objectives, by objectives we mean precisely the numerical information obtained thanks to the KPIs. These key metrics can be of great help when it comes to figuring out how much to spend on marketing campaigns.
The indicators are numerous, below you will find just a few examples:
- ROI = Return Of Investment. Metrics are used to monitor the profitability and sustainability of investments. How much did you earn from the investment allocated to implement a certain strategy? Formula: operating income / invested marketing budget.
- LTV = Lifetime Value of a customer. It is used to estimate the profitability of an average customer over time, evaluate the profitability and sustainability of investments, and monitor the effectiveness of remarketing. How much does it cost to keep a loyal customer? Formula: Average receipt x an average number of orders x customer life cycle/number of customers.
- CAC = Customer Acquisition Cost. It is used to quantify the costs to be spent on marketing to acquire new customers. How much does it cost to acquire a new customer? Formula: marketing costs / total new customers.
Concluding the example, when making a marketing budget for the coming year, the camera shop staff might consider the following parameters:
- What is the cost of acquiring a prospect?
- How much does it cost to keep a loyal customer?
- What is the return on investment for the previous year?
- What is the turnover of the previous year? Or forecast turnover?
- What are fixed expenses? Salaries, any refresher courses, cost of necessary software and tools, etc.
- How long does it take for the campaign to materialize the objectives?
Basing a marketing budget calculation on objectives means identifying the KPIs that will make you understand how much you will spend for a specific action and consider them together with other important parameters to obtain the most precise result possible.
4. Monitor the budget with measurement plans and KPIs
Knowing how to customize your data analysis based on the company’s characteristics that emerge from the marketing audit has enormous potential, it can give you many answers and certainties that are simply unthinkable with traditional marketing. In the previous example, banners can be created that, thanks to affiliate marketing, will appear on sites relevant to the subject of photography.
With a click, the customer is sent back to the product page on our e-commerce. Question: how many views (impressions) must be done before someone clicks on the banner?
Analysis objective: to monitor the effectiveness of the banner. Identified KPI: CTR = Click Through Rate, i.e. how much is the percentage of those who click on the banner about the total number of users who view it? Formula: click on the banner/total impressions (views) of the banner
We will therefore obtain the percentage of the performance of the banner. If the CTR is low, it is a sign of poor performance. The causes can be various.
It is noted down and taken into account for future strategic decisions where, by interpreting the data that allows you to monitor the marketing budget, you understand what needs to be optimized and how.
So the big difference between traditional marketing and digital marketing lies right here: the ability to measure, track and verify the progress of our campaigns as never before.
With marketing cost decision-making in context and terms like goal and conversion defined, it’s time to return to the budgeting methods mentioned at the beginning of this article. Once you have understood and identified which marketing strategies to implement, you can start making estimates. As? The last points of the marketing plan: setting measurable steps, deciding the budget, reviewing, and updating.
What does all this mean? It means translating the business objectives and the relative tactical steps into quantifiable metrics, KPIs, or into numerical indexes useful for monitoring the progress of the campaign. Indices through which it is possible to understand whether the strategic organization is evolving towards the realization of the set objectives or not.
But how do you identify metrics and KPIs? Again, the relevance of the context must be underlined: in digital marketing, everything can be measurable, you can also detect how many commas there are in a text, but it will be useless.
For a metric to be defined as a KPI, it must give you useful indications: it must predict the performance of that specific action. Identifying the KPIs and the various useful metrics can help you to prepare a measurement plan. It is a data analysis framework that can be integrated into the marketing plan where objectives are aligned with strategies and KPIs.
The measurement plan identifies metrics and dimensions to track to monitor your campaigns. Thanks to the data collected by Google Analytics or Facebook Insights, every customer action can be tracked. The funnel can be scanned and controlled. All of this explains what the budget marketing process is for.
Tips to optimize your marketing budget
As we have seen, data allows us to translate marketing actions into numbers and identify costs and earnings. How to justify to the president of the company, still reluctant to invest in digital projects of which he still knows nothing, the fund to be allocated to communication campaigns? With web analytics and social media analytics.
Sure, a fledgling company doesn’t have data, it takes a little patience. But those who already have experience and therefore a historian can measure their performance in a way that has never been possible before.
The accuracy of the data provided by digital marketing is not comparable to traditional methods. Can we measure with the same accuracy how many impressions a billboard made?
The data helps us to establish how much it costs to make a marketing plan and to calculate the marketing budget more precisely, but it also gives us useful answers to understand how to optimize spending, which channels to use, which tactics have worked for the company and which proved to be underperforming.
Learn to read web data! Become a web analytics specialist!
“Internet is the place to be”, or rather, “to buy” because almost all have at least one smartphone, they are therefore present online and demand answers from the network, they no longer have time to wait for a product to be presented by advertising television.
Maybe they see it, maybe not because they’re watching a movie on Netflix, Amazon Prime, or YouTube. Avoiding digitization means precluding the advantage of having a virtual showcase in more crowded “places” than the big cities: Google and Facebook. It’s a question of visibility.
Take advantage of targeting
There are digital advertising techniques that maintain the outbound aspect of traditional advertising, just think of the banner. Yet even the banners are not that intrusive, we try to integrate them as much as possible with the content of the page but, more importantly, they are distributed on the net in a pertinent way, thanks to targeting.
Being able to identify the buyer personas (again thanks to the data) and to do targeted marketing means intercepting potentially interested parties, creating audience segments that are interested in your product/topic, and therefore only proposing it to them. This decreases the risk of dispersion of the marketing budget, avoiding disinterested users.
Do inbound marketing
This habit of buying on the internet has opened the way to a new world: the trend of searching online not only for the product but also for related reviews, comments, and experiences has been created. It is now expected that a company has at least one Facebook page or LinkedIn profile.
Not going digital means precluding the possibility of attracting the public, this is inbound marketing: a more genuine promotional communication that attracts interested customers. The interest is greater when we are actively looking for the information we want rather than being interrupted by advertising while we do something else.
Start attracting customers, and spend your marketing budget only where needed!
Craftsmanship 4.0: why invest in corporate communication
With the introduction of digital technology, new possibilities have opened up even for a world that seemed to be slowly disappearing: the craft sector. Keeping a tradition alive means remaining faithful to certain aspects of the past, but often “the old” must be inserted and arranged in the new context, it must be renewed. There is a need for a new mentality that leads the craftsman to evaluate the new technological and digital possibilities.
This innovation is now possible: in a small artisan reality, all the complexities and typical aspects of any other business are present in proportion. The obstacle is not in the costs, that indeed the budget for digital marketing can also be contained. Rather, the greatest difficulty lies in being able to understand the potential and dynamics of the new market, renew the company’s internal structure, and understand which channels and strategies can bring benefits to the company.
The need to welcome change answers, by itself, the question of why budget marketing is done. It is certainly not an easy road, especially for those who know nothing about digital, but it is always possible to train or be supported by new online professionals. Digital transformation is not only possible, but already underway, and the ranks of 4.0 artisans are ever-widening.
An example is the collaboration between digital shops, a project created by Banca IFIS to encourage small businesses to regenerate themselves through digital technology, and the historic company Gabbiani of Murano, famous for its glass processing. Thanks to an innovative application, which combines augmented reality technologies with virtual reality technologies, it is now possible for the distant customer to witness the entire creative process of the commissioned object, from the first design to the packaging.
Another example is the FabLabs, digital manufacturing laboratories open to collaboration, and workshops where manual skills and technology coexist.
The motto “do it yourself” is turning into “let’s do it together”. The manufacturing sector, despite the various blows it has endured over the years, is undergoing a positive transformation, and not only thanks to virtual reality or 3D printers that facilitate the creation of prototypes.
It is precisely thanks to digital marketing that a shoemaker, a carpenter, or a painter can sponsor their business online, increasing the possibility of being intercepted by those who need them at that moment. There are many examples of micro-enterprises and family businesses that have managed to revive their business thanks to digital techniques. The question now no longer seems to be whether to invest in digital but how to do it, deepening the role of digital strategists.
Conclusions and strategic advice
The news scares us, we don’t trust it because we don’t know, we don’t understand, we are afraid of finding ourselves facing unsustainable expenses and we don’t even know where to start. The question is: can we stay out of the new? And when is the new consolidated as a standard? Digital is a well-established revolution.
In this article, we have mentioned various aspects of digital marketing, including the need to know how to manage the marketing budget. If you are interested in learning more and want to know more, take advantage of the advantage that a free consultancy service can give you!
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