Now that the financial year is nearing a close, it is a good time to prioritise an assessment of your marketing budget for the next year. The challenge for small to medium businesses is to balance achieving your goals (and then some!) with sustainable spending.
I have included some guidelines below to help you with this process.
Simple Considerations
Revenue
What is your gross and estimated revenue?
According to the February 2022 CMO Survey of 2592 Companies, Marketing budgets rose to around 10.4 % of the company revenue.
Company Size
Typically, new companies (under 5 years old) need to allocate a more significant budget to their marketing expenditure in order to develop the brand and gain loyalty. For newer companies, at least 20% should be allocated to your marketing expenditure.
Why should I spend double on marketing a new enterprise, you may ponder? The reason is that the probability of selling to an existing customer is 60 -70% in 2022, but the probability of selling to a new prospect is only 10 – 20%!
Until you gain a loyal customer base, marketing is the key to developing your brand (and bank balance!).
Total Budget
Marketing budgets as a percentage of overall budgets rose to 11.8% over the past 6 months. This figure is expected to rise and Digital marketing spending, which currently accounts for 57.1% of marketing budgets, is expected to grow by 16.2% this year.
In Depth Analysis: Goal Setting
A more accurate assessment of required marketing budget can be determined by comparing cost per lead and conversion rate.
How to determine your goal-based spend
- Goal Setting
Begin by setting achievable goals for revenue and customer growth for the year. You may wish to consult members of your business and your business community, perform industry research, and look at your achievements over the past year to
- Cost Per Lead (CPL)
Calculate the CPL by dividing the total amount of marketing spending by the number of leads created. If you spent $10,000 on marketing this year, and generated 1000 leads, your cost is $10.00 per lead.
- Calculate Your Conversion Rate
For example, if you generate 1,000 new leads, but only 50 of those become customers, then your average conversion rate is 5%.
- Determine How Many Conversions Are Needed
Your next step is to figure out how many leads your company will need to reach your new customer goal. The best way to determine this is by dividing your new customer goal with your average conversion rate.
- Determine Final Conversion Costs
Once you know how many leads will be required to achieve your goal, you can go back to your CPL calculation to determine what your final marketing budget should be. Keeping with the previous examples, let’s assume you need 1,000 new leads and your average cost to generate each lead is $100.
Now simply multiply the two numbers together to arrive at your final marketing budget.
Marketing Operational Costs + (Goal Number * Goal Acquisition Costs) = Total Budget Spend
That means in order to get 100 new customers, your company should plan to spend at least $100,000 on marketing for the upcoming year.
Additional Considerations
Once you have determined your budget, you will need to consider allocating operational expenses, channel or media allocation costs and research and analysis of key performance indicators.
With an Eco Digital Marketing Management Package, we will work with you to develop and execute a comprehensive marketing plan according to your initial budget so that you are able to pay a simple, set-price monthly fee.
To find out more, please contact me to set up a FREE 20 minute consultation.
