A good marketing budget is a lifeline for every small business
Unfortunately, many business owners restrict themselves to generating marketing plans from unrealistic ideas without thinking about the possible outcome of their marketing strategies.
In the business world, numbers and research reports can only provide useful insight if used accurately. To succeed, you need to look at the bigger picture.
The following simple steps will ensure that you can craft a realistic marketing budget.
If you’d like to find out more about outsourced marketing services, give us a call on 0115 671 3868
The big picture
Getting a broad perspective on marketing budget will allow business owners to set their goals according to their financial condition.
Here is how to allocate your marketing budget to the most critical tasks:
How much to invest?
As a rule of thumb, new businesses need to allocate more of their predicted gross revenue to marketing. In contrast, a company that has been in business for one to five years and has reliable sources of new customers or recurring revenue need not allocate as much.
Figures are dependent on your business, but in the early days, you should expect to allocate anywhere from 12% to 25% of your gross revenue. In contrast, established companies usually spend 1% to 10% of their budget for marketing purposes.
Before setting up a budget, it is essential to understand that the dynamics of small business are different from other medium-sized and large corporations. As a result, small businesses must be cautious in planning their budget.
While large businesses often spend millions of pounds every year figuring out what works before they streamline their marketing budget, small businesses cannot afford to test the waters in the same way. It means you should have a clear idea of how much you want to spend.
Calculating ROI
A practical method to understand how much you want to spend is by calculating your expected return on investment, or ROI. To get ROI numbers, you will need to get your hands on some market data because going by your instinct will be risky for any small businesses.
Try to invest in buying data that can give you a reasonable estimate of what to expect from your marketing efforts. If there is no such data available, spend time in your market to get a broader perspective on demand for your product or get your marketing agency to gather relevant data for you.
Once you have robust data to back up your marketing strategy, you should be able to design your marketing budget according to the market dynamics.
Sales funnel
A time-tested method to streamline your marketing budget is looking at the sales funnel. For almost every small business, the funnel divides into four distinct categories. These categories are awareness, interest, decision, and action.
By understanding the flow from category to category, you can efficiently allocate specific funds to each step of your marketing plan.
Let’s look at a typical sales funnel from the perspective of a small tour company that sells local tours to customers in a busy tourist town.
Awareness: For your potential customer, awareness means they discover your product or service.
The first step in budgeting is to plan how you can create awareness among customers. For a tour company operating from a retail store, it can create awareness by distributing brochures, putting stands outside the office, and placing promotional materials inside the tourist information center.
In contrast, an online tour operating company will need to create awareness by spending on Facebook and Google Advertisements.
Because a funnel works best when a lot of potential customers enter it, small business owners should be ready to spend at least 50 percent of their marketing budget on generating awareness.
Interest: The next step in the funnel is to generate interest among customers. Customers at this stage are looking for your service or product.
Interest in your products and services is generated through more targeted advertising, such as via email, specific and relevant blog posts or good SEO to target specific searches your customers make.
Our tour company may advertise a free guide to a specific destination or have good SEO to appear top of Google for “tour companies in Leicester.”
Decision: Your customer is coming to the end of their research and is now comparing alternative offers to make their purchase decision.
Whether the shopper decides in your favour depends on your competitive advantage. Ask yourself how you are different from your competitors? Why should consumers select your company and not your competitors? Do you offer something different from others?
If you have a unique product, you may not have to spend a substantial portion of your marketing to convince consumers to buy from you.
In contrast, most products and services only differ slightly; therefore, you should be ready to spend a part of your marketing budget in giving discounts and advertising regular promotions.
For our example tour company, it means offering prices that are lower than the competition, allowing the customers to pay at the end of the tour, and providing flexible booking and cancellation policies.
Action: The essential part of the journey is closing the deal, i.e., getting your customer to part with their hard-earned cash.
In saturated markets, consumers are often overwhelmed by opportunities. Too often potential clients look ready to take action only to bail out from the offer at the last minute.
To close out a sale, it is pertinent to offer a special bonus for a limited time or a special discounted price whenever the customer reaches the end of a sales funnel.
Our tour operator might offer a one-day special, a great follow-up offer if you get to the checkout without paying and retargeting PPC ads.
Be prepared to allocate part of your marketing budget to get customers over the line. People that make it to the decision part of your funnel are the easiest to move to action, which is why they are known as ‘warm’ prospects. Make sure to capitalise on that.
If you’d like to find out more about outsourced marketing services, give us a call on 0115 671 3868
Setting goals
Once you have a fair idea of your market, it’s time to think about data crunching. You will set your marketing budget according to your ROI.
Determine how many leads you need to make a sale and the costs associated with that. To safeguard your business interest, it is recommended to estimate sales based on the lowest data parameters.
For instance, if your data tells you that 3 out of 100 leads will yield a sale, you should set your expectations at a lower end of the range. Instead of estimating your return at 3%, it’s safer to predict a lower conversion rate around 2.5% or even 2%.
We often see this to be true when opening up the top of the funnel; the more leads you capture at the awareness stage, the smaller the percentage who make a purchase with you. Don’t get caught out assuming conversion rates stay the same as you grow.
Setting prudent conversion goals in this manner enhances your chances of survival. As a small business, you don’t have the flexibility of testing the market to stay afloat by being practical in your assumptions and not exaggerating your goals.
Learn from your competition
Even if you have great marketing data to work with, it always pays to look at the methods used by your competition. Successful businesses already have strategies that work for them in your market.
Still, you do not want to implement their successful marketing strategies blindly. After getting an overview of potential strategies, focus on those which you think will work for your unique business model.
Suppose your data tells you that marketing on social media is an excellent strategy because it works for successful companies in your field. However, you may have missed that your competitor has hired a professional social media company to give them a competitive edge.
If you don’t have the budget needed to hire a professional social media company or the time to run it yourself, there is no sense in trying to copy this tactic.
You need to carefully evaluate your competition before allocating your marketing efforts to a specific area. What works for them may not work for you, and vice versa.
Creating the perfect marketing budget
A good marketing budget is never formulated in mind. Its success depends on building it on paper and generating different outcomes using professional tools. Here are the steps that you need to follow to create the perfect marketing budget:
One: Determine the amount of marketing budget that you can reasonably allocate to your business. Don’t kid yourself about the realistic budget because you can’t run a company based on wrong assumptions.
Two: Calculate your return on investment. If you don’t have any data, conduct market research to get the data or consult a marketing company to help you get it. Once you have the required statistics, always make a business plan with the lower end of the expected outcome.
Three: Consider how much you are going to spend on each step of the sales funnel. For the sake of simplicity, start by putting most of your resources into the first two steps of the sales funnel.
Four: Never ignore your operational costs. If you’re wise, it makes sense to correlate your marketing budget to your operational cost. As a rule of thumb, the revenue generated from increasing the marketing cost should always be higher than the increase in operational cost.
Five: Keep an eye on your competition and only test methods that have good odds of giving you a positive return on your investment, Don’t get greedy by testing marketing methods that don’t have enough data or are impractical for the size of your business. For a small business, it’s always prudent to pick just two or three marketing strategies and get good at making them work.
Six: Review regularly. In today’s online world there’s no shortage of data you can gather to provide feedback on the success of your marketing activities. Make sure to review the data at least monthly and be bold in changing or stopping activities that do not pay their way.
In summary…
Successful business owners rely on data, statistics, and number crunching to develop a marketing strategy.
If you are shy of numbers, you are not alone. Most of us don’t like to spend our time fiddling with formulas in a spreadsheet. However, neither should we rely on our gut instinct.
If you get a little anxious at the thought of setting your own marketing budget, why not talk to someone who can guide you in understanding the numbers you acquired for research?
Here at Ketchup, we have a decade’s experience in helping small, and growing businesses grow faster and more effectively. Give us a call, contact us here, or send us an email to see how we can help you.
If you’d like to find out more about outsourced marketing services, give us a call on 0115 671 3868
