Even though many times there is more creativity in budgets than ads, the easiest way to get a marketer to groan is to tell them to do a marketing budget.

The Marketing Budget Process

The first step in establishing a marketing budget is to remember that marketing goals are simply a means to achieving business goals and should be viewed as such.  As with most things in life, almost anything is possible with enough time and money – it is just not a reasonable and sustainable approach.

For most companies, marketing is a method to get sales leads, so then the first question to be answered is:
What is the value of a qualified sales lead to your business?

If you already know – skip to the next paragraph.  If not, start by determining the average value of a sale, then subtract the fully-burdened (all of your expenses) cost of the sale, to get your profit per sale.   Now you know the estimated maximum to pay for a lead – you need to determine an amount less than this or you lose money.   All that said, this is a generalization – in the case of certain business conditions, like a start-up, many companies are on a (hopefully brief) the more you sell, the more you lose plan.  They just make it up in volume.

Next, determine how many leads you can reasonably handle and effectively close and your average close rate.   Now, just do the math to determine how many leads you need to fill the pipeline (if you can handle 5 sales per month and have 10% close rate, you need 50 leads per month).    Last, take the amount you have determined that is reasonable to pay per lead and multiply it by the number of leads you need to meet your sales goals.

That is your estimated optimum monthly marketing budget – if you pay more, you will be cutting into profits, if you don’t invest that amount in marketing, you will most likely be unhappy with the results.

Or  - you can do what most companies do – from the very large to the small  - and pull a number out of the air. Many times, this amount, is the amount “you can afford.”  This is reasonable – it is hard, especially in this time of restricted credit, to have money to spend that you don’t have.  However, at the same time, expectations need to be reset on the expected outcome.

Next up – putting that marketing budget to work with a tactical marketing plan.