We will tell you what types of marketing expenses there are, why the marketing budget is not equal to the promotion budget, and how to calculate and form it.
What is a Marketing Budget
Budget Expense Items
Marketing Budget Planning Methods
Methods of calculating the marketing budget
Step-by-step formation of a marketing budget
Mistakes Companies Make When Planning a Budget
Expert advice
Read Also:Mastercard Names Devin Corr As Head Of Investor Relations
What is a Marketing Budget
Table of Contents
A marketing budget is often understood as a plan of expenses for advertising a company, brands or individual products. But this is not true. A marketing budget is a plan of financial expenses for all marketing purposes of a company. It includes expenses not only for communications and customer acquisition, but also for research, product testing, and branding.
Marketing goals are directly related to business goals. As a rule, the company’s long-term goals, mission and strategy are formed first. Then goals are set for the next year or two: sales growth, profit increase, becoming one of the top companies in its industry. For them, goals are already formed in functional areas, including marketing. Marketing goals are related to promotion, pricing, product and sales.
Budget Expense Items
When a marketer creates a company’s marketing budget, he focuses on these main expense items:
● Internet
website and social media management, development of landing pages on a specific topic, interaction with bloggers to increase interest in the company, contextual and targeted advertising.
● Direct advertising
is the promotion of a company outside the Internet: in magazines, on television and radio, on billboards.
● Event marketing
is the organization of events to expand the customer base and attract the interest of existing customers. This includes customer days, competitions and promotions, professional exhibitions, participation in fairs, festivals and lectures.
● Printing
brand promotion through products with original logos and styles: business cards, booklets, souvenirs, stationery, employee badges and packaging of client goods.
● Research
analysis of interaction with the target audience, one of the most important points in determining the marketing budget for the year ahead or for the reporting period established in the company. The budget is distributed among surveys, focus groups, review studies and the “secret shopper” format.
● Employees
payment for the work of full-time or freelance specialists: marketers, targetologists, developers, SMM managers, designers. This also includes expenses for training and professional development of personnel. ● External consultants – payment for the services of specialists who establish business processes and solve problems related to the development and positioning of the company. Attracting an “outside view” helps to see gaps in project management or movement according to brand strategy.
● Branding –
defines a unique brand image and its values, thanks to which the company will be able to stay on the market for a long time. This expense item takes into account increasing competitiveness, creating a brand reputation and clear advertising messages, captivating the target audience in the long term. This expense item usually includes the creation of a trademark.
Marketing Budget Planning Methods
We have collected four popular budget planning methods:
1. Based on revenue share
Most often, companies plan their marketing budget based on their sales plan — the revenue expected in the next year or two. But this approach does not take into account market changes, such as inflation, procurement or logistics issues. The company becomes like a snake biting its own tail — it risks cutting its marketing budget significantly due to market instability.
2. From competitor analysis (benchmarking)
Marketers use several approaches to analyzing their market peers:
● Competitor analysis through services
Marketing expenses through benchmarking are determined based on analytics or insider information about budgets, advertising volume, turnover and profits of competitors. Statistics on online advertising can be viewed through certain resources, for example, on SimilarWeb . The service contains information about website traffic and a list of advertising channels used by various companies.
● Competitive parity
Involves dividing marketing costs by market share.
Let’s look at an example.
The company monitors the advertising activities of its closest competitor and looks at the information on the volume of its marketing investments when forming a budget. The data on the competitor’s marketing costs is inaccurate, the reference point is only the assessment of the volume of its advertising in different channels and the estimated cost of its placement.
The competitor attracts traffic to the site using contextual advertising – 50%, and targeted advertising – 40%. Organic traffic is 10%. The competitor’s site traffic is approximately the same as the company’s site – 5,000 people per month. The cost of a lead from the company’s contextual advertising is 270 ₽, from targeting – 150 ₽.
Then the marketing budget for next year will be: 5000 × 12 × 0.5 × 270 + 5000 × 12 × 0.4 × 150 = 11.7 million ₽.
When choosing this method, qualitative differences between the company and the competitor and different target priorities do not come into view. The competitor may have internal expenses that are not publicly disclosed. For example, it invests in the development of a modern mobile application, which the market learns about only after its launch.
3. From the amount of funds that the company is willing to invest in marketing
This method is used by startups or companies without a historical base related to marketing development. A young company does not have large budgets and plans from the funds that it currently has. In conditions of a limited budget, it is important to clearly build an action plan, select several advertising channels and test their effectiveness.
Let’s look at an example.
A regional manufacturer has launched a lemonade brand on the market and is selling it in traditional retail. To enter large federal chains, it is necessary to launch a comprehensive advertising campaign. Since the advertising budget is limited, the company’s managers decided to act in stages.
4. From goals and objectives
The method is focused on assessing the necessary resources of the company. The budget is formed through the sum of all pre-calculated costs after the marketing tasks are completed. This approach to creating a budget is considered the most effective and complete. But here, too, the accuracy of the calculation is approximate. In order to properly assess the adequacy of costs to the predicted result, you need to be able to analyze marketing investments. In order to optimize the budget, costs can be calculated based on tenders among advertising agencies.
For example, next year the company plans several activities:
● Launch banner advertising in YAN (Yandex Advertising Network) to increase company recognition. Yandex Direct data gives CPM (cost of ad impressions per thousand contacts) of 230 ₽ for 50 million views.
● Using contextual advertising, attract 100 thousand leads with CPC (cost per click) of 330 ₽, using targeted advertising – 80 thousand leads with CPC of 310 ₽.
Then the company’s budget for the next year will be: 50 thousand (50 million views / 1000) × 230 + 100 thousand × 330 + 80 thousand × 310 = 69.3 million ₽.
Any marketing specialist should plan and develop a marketing budget correctly. If you have not yet decided on a direction, then the free course “What profession in marketing to choose” will help you understand which professions are in demand now, what different specialists do and how to build a successful career.
Read Also:Financial Forecasting Strategies – Navigating the Future with Confidence
Methods of calculating the marketing budget
In order to correctly digitize the marketing budget, you need to understand how the company or product economy is formed. Unit economics calculations , determining marginality, the share of advertising expenses and understanding the sales funnel will help with this.
Unit-economics
A unit is a unit of a product or service that a company produces and sells. Unit economics is the calculation of the difference or ratio of revenue and expenses for a product, client or user. It is calculated at the business planning stage to forecast sales and after its launch to track possible problems. Weekly analysis allows you to evaluate the indicators and understand what can be changed and improved.
Marginality
In an ideal world, the marketing budget, including advertising, should be included in the cost of production. This budget can be included in variable or fixed costs. It depends on the company’s decision. But it often happens that advertising costs are not included in the cost of a product or service at all. Then they are covered from the margin. The margin is the difference in rubles between the cost and the final price. The company makes a profit from the margin. Marginality is the difference in percentages between the cost and the final price.
Let’s say we sell a product for 1000 ₽. Of these, 700 ₽ is the cost price, and 300 ₽ is the margin. Advertising costs are not included in the cost price and are covered by the margin. This means that we can spend no more than 300 ₽ on advertising.
Share of advertising expenses
The share of advertising expenses reflects what percentage of the money earned was spent on advertising, that is, how much money was spent to earn 1 ₽. Let’s consider a company with a margin of 30%. It can spend the entire margin on marketing or only a share of it.
Sales Funnel
In order to determine the share of expenses within the marketing budget, you need to understand the goals at each stage of the sales funnel.
Step-by-step formation of a marketing budget
A marketing budget is effective if it pays off. Here are some factors to consider when planning your budget:
● Seasonality of demand
This is relevant for companies that depend on seasonal fluctuations in demand for their products, such as certain food products or beverages. There are also ups and downs in business activity in the B2B market. For example, sports equipment is purchased by tender only a few times a year, and suppliers of components adapt to production cycles.
● Sales and production capacity
Will the company be able to handle a large flow of customers and will it be able to manufacture products or provide services on time?
● Channels to be used for advertising
The choice of advertising channels is related to the sales funnel and business goals. When selling B2B software, attracting large corporations will work through exhibitions, specialized conferences, publications in articles and personal sales. This approach increases the company’s expertise, since the transaction cycle can last more than a year. Simpler services in the B2C sphere involve working with different tools: contextual advertising, media advertising, attracting influencers to form the first stage of the sales funnel. Then lead generation, email marketing, call centers, content marketing and publishing reviews are connected.
● Cash flow
control of cash gaps (temporary problems with financing budget expenditures) and realistic possibilities for payment by installments.
The plan of action will depend on the size of the company.
For startups
1.● prioritize goals and objectives;
2.● test promotion channels;
3.● do not stop if advertising does not immediately bear fruit, determine the timing of interim reporting, appoint responsible persons who will monitor KPIs (key performance indicators);
4.● accumulate advertising statistics, analyze quarterly indicators, identify problems;
5.● adjust the budget or reallocate it to higher-priority goals;
6.● gradually add various activities to advertising channels to improve the efficiency of budget allocation.
For large companies
1.● conduct strategic sessions, formulate tasks for management;
2.● analyze accumulated experience from previous promotion (target audience, popular promotion channels, percentage of revenue, proportion of market share and share of costs);
3.● coordinate actions within the budget between different departments.
Mistakes Companies Make When Planning a Budget
❌ Marketing ROI indicators are calculated for the business as a whole, not separately for each channel
End-to-end analytics will help to correct this, which, using various tools, such as Yandex Metrica and Google Analytics, allows you to determine traffic sources in order to then calculate the necessary metrics and ROI for marketing (ROMI).
❌ Only one channel is used to attract customers
The audience of this channel may dry up, so it is necessary to consider several advertising channels.
❌ Advertising activity is stopped during the “off-season” or during a decline in demand
With regular promotion, customers will continue to come, and the company will win against a competitor who puts this activity on pause.
