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Unlock This CourseEvery marketing plan needs money to make it happen. Whether you're a small local shop or a huge global brand, you need to carefully plan how much you'll spend and what you'll spend it on. This is called budgeting and it's one of the most important parts of marketing.
Key Definitions:
Imagine planning a party without knowing how much money you have to spend. You might end up ordering too much food or not having enough for decorations. Marketing budgets work the same way - they help businesses plan what they can afford to do. Without a clear budget, companies might waste money on ineffective campaigns or miss opportunities because they didn't plan properly.
Most businesses don't have unlimited money for marketing. Budget constraints force marketers to be creative and focus on activities that will give the best results for the money spent. This means making tough choices about which marketing channels to use, which customer groups to target and how to spread spending throughout the year.
There are several approaches to creating a marketing budget. The right method depends on your business size, industry and goals.
Many companies set their marketing budget as a percentage of their sales revenue. For example, a business might allocate 5-10% of its expected annual revenue to marketing. This method is simple but may not always align with specific marketing goals.
This approach starts with specific marketing objectives and then calculates how much it will cost to achieve them. For example, if your goal is to gain 1,000 new customers, you'd work out the cost of acquiring each customer and multiply by 1,000.
Some businesses set their marketing budgets based on what competitors are spending. This requires research into industry standards and competitor activities, but helps ensure you're not being outspent by rivals.
When planning a marketing budget, you need to consider many different types of costs. Some are obvious, but others are easy to overlook.
Once you have a budget, you need to decide how to split it across different marketing activities. This is where many businesses struggle, especially when trying new channels or approaches.
The marketing mix (often called the 4Ps: Product, Price, Place, Promotion) provides a framework for allocating your budget. Each element may require different levels of financial support:
Most businesses find that their budget isn't evenly distributed across these areas. For example, a new product launch might require more spending on promotion, while an established product might focus more on place (distribution) improvements.
When Innocent Smoothies launched in the UK, they had a tiny marketing budget compared to big drink companies. Instead of traditional advertising, they allocated most of their budget to sampling (letting people try their product) and quirky packaging with conversational text. They also used creative PR stunts that cost little but generated lots of media coverage.
For example, they created the "Innocent Village Fete" which became a popular annual event. This approach helped them build a strong brand despite limited resources. They focused on creating a unique personality for their brand rather than spending huge amounts on TV adverts like their competitors.
The lesson? Sometimes how you allocate your budget matters more than how much you have to spend.
It's not enough to just spend your marketing budget - you need to know if that spending is working. This is where ROI comes in.
The basic formula for ROI is:
ROI = (Revenue Generated from Marketing - Cost of Marketing) ÷ Cost of Marketing × 100%
For example, if you spend £1,000 on a social media campaign that generates £5,000 in sales:
ROI = (£5,000 - £1,000) ÷ £1,000 × 100% = 400%
This means for every pound spent, you got £4 back in profit - a good return!
However, calculating ROI isn't always straightforward. Some challenges include:
Small businesses often face tight budget constraints. They need to be especially careful about where they spend their limited marketing funds.
Tips for small business budgeting:
Larger businesses have bigger budgets but also more complex challenges when it comes to allocation.
Considerations for larger businesses:
Marketing budgets shouldn't be set in stone. Smart businesses adapt their spending based on results and changing market conditions.
Consider reviewing and potentially adjusting your marketing budget when:
The most successful marketers maintain some flexibility in their budgets to respond to unexpected challenges and opportunities.
When COVID-19 hit in 2020, many businesses had to rapidly rethink their marketing budgets. Companies that had allocated significant funds to trade shows, in-store promotions and outdoor advertising suddenly found these channels unavailable or ineffective.
Successful businesses quickly shifted their budgets to digital channels, e-commerce support and contactless service promotion. For example, many restaurants reallocated their print advertising budgets to developing online ordering systems and promoting delivery services.
This example shows how external factors can require complete budget overhauls and why building some flexibility into your planning is essential.
Remember: The most effective marketing budget isn't necessarily the largest - it's the one that allocates resources strategically to achieve specific business goals.