How to budget for marketing the right way

If there’s one piece of advice you should take away from this article, it’s this:

Budget to meet your goals. Don’t try to fit your goals around a predefined budget. 

Often the case for a startup business is that they’ll randomly assign a marketing budget out of thin air based on what they think to be a reasonable spend. This is a bad way to go about budgeting and will probably set you up for chaos later on.

Figure out what is most important for your business at this stage. Is it increasing sales and raising funding, or is it improving your product and innovating? Then set realistic, metric-backed targets to match. Have a marketing professional review your targets and recommend which strategies and channels you should use to achieve them. Allocate funds based on how much each channel will cost per month and give yourself a decent amount of wiggle room. Most entrepreneurs fail not because they have a bad product but because they fail to get the word out and reach their customers. If you’re unsure, look at your marketing budget in the past and see how it performed to decide if you’re underspending on marketing.

It’s cliche but true: follow the data! Especially if you’re a small startup with limited funding, any money slipping through the cracks is increasing your chance of failure. So, you want to invest in the strategies that are paying off with real leads, conversions and sales, instead of wishy washy tactics that are just for show.

For example, imagine you are a brand new business with a flashy product that you want the world to see. Unfortunately you’ll never bring it to the global market without funding, so you need sales – and fast. There are plenty of marketing strategies you could employ, but some will bring a return on investment faster than others.

SEO might have a huge payoff in a year or two, but by that time your business will be a remnant of the past if you don’t bring customers through the door. So, investing in paid advertising like Google Ads is probably better for gaining momentum, and you should allocate more funds for that than you are for SEO – for the time being.

If down the line you’re investing half your budget in PPC, but the other half of your budget – going to SEO and social media – is significantly outperforming PPC, then you should shift the balance. Allocate more money to SEO and social media and cut back on PPC spending. Follow the return on investment, keep track of key performance indicators, and double down on strategies that bring immediate conversions. Still keep some budget for exploring new avenues though!

By reviewing your marketing budget according to performance metrics, you’re instantly putting yourself ahead of most small businesses. If you can see what works, where money is being used effectively and how you can scale your marketing, you can make changes to your budget that reflect these crucial insights.

To take advantage of your budget, calculate your biggest marketing expenditures for each month or quarter. Then compare these expenditures to performance metrics to find customer acquisition cost. Look for key performance indicators like web traffic, sales and positive feedback to identify which methods use your money effectively, and cut out those that don’t. Reviewing your marketing budget is about keeping it as lean and effective as possible, by removing costs that don’t directly result in growth.

If you’re not reviewing your marketing budget at least on a quarterly basis, you’re letting huge amounts of money slip through the cracks. You’re also slowing down your marketing, which can be especially painful if you’re outsourcing it to an agency who’s trying to use your funds efficiently.

Budget insights can tell you a lot about how effective marketing channels are and where you should spend your money, but predicting change in the market is very difficult. Trends can come and go, new innovations aren’t uncommon, and you never know when Google or Facebook is going to bump up their advertising prices. Therefore it’s so important that you allow yourself room in your budget to adapt to these changes.

For example, if a competitor launches a new version of their product with significant innovations that puts it above your product, you’ll want to innovate as fast as possible. But seizing a share in the market and getting consumers to buy your new product fast will require a large increase in your marketing budget. So you’ll want to have flexibility in place that allows you to do this if and when the time comes. Change happens, it’s inevitable, and you need to be equipped.