September 23, 2003
How to determine your marketing budget
and get it approved
It’s that time of year again. Time to start planning your marketing budget for the new year. Here are some practical ideas you can use to formulate your marketing budget and get it approved.
There are three common approaches to budgeting for marketing:
1. Take last year’s budget and subjectively add to it or cut it to arrive at a figure for this year’s budget.
2. Use a percentage of sales as the basis for the coming year’s budget. With this approach, you look at what you plan to make in sales in the coming year and multiply that figure by a percentage; the result is your marketing budget for the coming year. For business-to-business marketers, four percent (excluding personnel costs) is a common multiplier. Note that you should avoid using last year’s sales volume as the basis for this calculation. If last year was a bad year for your company, and you only budget for four percent of that amount, you won’t have a large enough marketing budget to meet your growth goals in the coming year.
3. Use blank-page budgeting, which is the best approach. With this technique, you build the marketing budget from scratch, using your marketing plan and its marketing communications tactics to create the budget.
The blank-page budgeting approach gives you real numbers based on the marketing activities you need to complete in order to meet the coming year’s sales goals.
Clearly this is the best way to budget. Budgeting based on past revenue is like driving your car while only looking in the rearview mirror. And simply applying a percentage of your anticipated sales doesn’t reflect the reality of what marketing activities actually cost.
To assist with blank-page budgeting, go to www.salesleadexperts.com/tools/ and click on the "Marketing Lead Calculator" link. It will help you to determine how much funding you will need, in general, to meet the coming year’s sales goals.
Then, starting with a blank page, list all the costs for the marketing tactics identified in your marketing plan (e.g., rentals, postage, materials, printing, design, photography and writing services) and total them to determine the budget you need.
Provide your management with three marketing budget options: minimum, target and stretch.
These three budget levels reflect how much funding is required to meet your company’s minimum, target and stretch sales revenue goals. You can explain that meeting the minimum sales goal will cost X dollars, meeting the target goal will cost Y dollars and meeting the stretch goal will cost Z dollars.
Typically, when management is presented with proposed marketing budgets that show a relationship to the company’s goals, they will pick the budget linked to the goal they believe is most appropriate for the company rather than simply cutting the single budget number you otherwise may have proposed.
Use your marketing plan to justify the budget.
To fortify your budget proposal, be prepared to explain to management, in general, how you intend to allocate the funds. Your proposal should include a written marketing plan geared to each of the three budget levels, including an executive summary, a situation analysis, corporate goals, marketing strategies and tactics, the marketing calendar and the budget.
For help with creating your marketing plan, visit www.salesleadexperts.com/tools/ and click on the links for “How to Boost Your Company’s Sales with Marketing” guide and its companion “Boost Sales with Marketing Worksheet.”
Unless you are planning to use your marketing plan when raising money from investors or getting a loan from the bank, don’t worry about making it fancy. A PowerPoint presentation along with some Excel® spreadsheets listing action items and budgets is all you usually need.
Get your marketing budget approved.
If your managers resist your budget proposal, emphasize the cause-and-effect relationship between your marketing plan/budget and the company’s sales goals.
If they talk about cutting the budget from the current level, ask them which sales they are willing to give up, because cutting the budget will result in less sales revenue.
Use the Marketing Lead Calculator (mentioned earlier) to show them the relationship between budget, marketing touches, leads and sales.
Dramatic tactics can sometimes rally management support. For example, obtain copies of all marketing materials from all your competitors and, before meeting with management, wallpaper the conference room with these brochures, website printouts, ads and so forth. Seeing what your competitors are doing is sure to evoke a strong emotional response from senior management. You’ve turned the marketing budget discussion into a “how are we going to win this game” conversation which always ends up favoring a boost to the marketing budget.