Building a successful company involves successfully marketing your product, your service, or yourself.

Far too many companies underspend on their customer-facing efforts, or instead they overspend trying to reach a specific target audience.

One of the best ways to make sure that your marketing money is being well spent is to develop a comprehensive marketing strategy and come up with a solid marketing plan. Following a well-defined plan will help ensure you are spending your marketing funds wisely.

A marketing plan should include everything from understanding your target market and your competitive position in that market, to how you intend to reach that market (your tactics) and differentiate yourself from your competition to make a sale. 

Your small business marketing budget is an essential component of your marketing plan. It will outline the costs of how you are going to achieve your marketing goals within a certain timeframe.

Here are the six steps to developing a marketing budget as part of your marketing plan:

1. Know Your Sales Funnel

Building an effective marketing budget requires a deep dive into your sales funnel, where you’ll track results throughout the revenue cycle, from prospect to customer. Harvesting this data from your marketing automation software or CRM makes this process relatively simple:

• How many site visits do you have per month?
• How many leads are you generating per month?
• How many of the leads convert to sales qualified leads (SQLs)?
• What’s the cost of generating these SQLs? (e.g., website development, outsourced content creation, Pay-Per-Click, time spent by marketing and/or sales to nurture these leads, etc.)
• How many leads convert into opportunities?
• How many of those opportunities close as new deals?
• What’s the typical value/revenue of a new deal?

2. Know Your Operational Costs

Next, you will need to understand your operational costs:

• How much would it cost in time and labour to deliver contacts?
• Does your internal staff have the bandwidth required for this work, or will you require additional headcount along with the related employee benefits costs?
• How much would it cost if you hired an agency of record?
• What are the potential costs of your inaction?

3. Set Your Marketing Budget Based on Business Goals

Determine your business goals by asking yourself the following questions:

• What are your business objectives for the quarter?
• What are your business objectives for the year? How about three years out?

It’s common for small businesses to allocate 7-8% of their revenues to marketing, splitting that between brand development costs such as websites, blogs, sales collateral, and promotion costs, as well as campaigns, advertising, and events. Never base your marketing budget simply on what’s left over after covering all other expenses.

4. Position Marketing as an Investment, not a Cost

More often than not, marketing budgets descend from the top of the organization where marketing teams are considered cost centers and the marketing budget is perceived to be an expense.

By this thinking, organizations will look at last year’s marketing expenditures and make a decision about where they want to spend more or less. Instead, your marketing budget should be treated as an investment, something that will bring a quantifiable and ascertainable return on investment over time.