Spending levels are strategic and tactical. Some companies spend 50% of sales on marketing, some spend 10%, and some spend nothing at all.
Your Budget is a Marketing Tactic
There are several benefits of creating and using a marketing budget:
The goal of your marketing budget is to control your expenses and project your revenues.
- It also assists in the coordination of your marketing activities within your organization.
A realistic budget establishes a standard of performance for your actions, and communicates those standards to others responsible for implementing your marketing strategy.
A well-designed budget is also a tool to keep you on target and indicate when there is needed modification of your marketing plan, especially if something goes really right or very wrong.
A Simple Expense Budget
Budgets are plans. They are spending plans, activity plans, sales plans, marketing plans, all linked to the disciplines of careful projection and resource allocation.
The math of the expense budget is very simple. The content takes work, but not the design of the table. It’s built on common sense and reasonable guesses, without statistical analysis, mathematical techniques, or any past data. The mathematics are also simple, sums of the rows and columns.
In the example below, rows are horizontal, columns are vertical. Each line of expense occupies a row, and months and years occupy columns. The source spreadsheet hides the monthly columns for March through October for the purpose of illustration, so you can see the annual total without scrolling. Those other months are there, even if they don’t show.
The total expense row sums the individual expense rows. The annual expense column sums the months for each row, including the total rows.
|Marketing Expense Budget||Jan||Feb||Nov||Dec||2009||2010|
Total Sales and Marketing Expenses
|Percent of Sales||6.24%||9.36%||6.77%||3.75%||7.48%||8.82%|
As you develop a budget, think of it as educated guessing. Consider your plan objectives, your sales and marketing activities, and how you’ll relate your spending to your strategy. Remember, as you budget you want to prioritize your spending to match your priorities in sales and target marketing. The emphasis in your strategy should show up in your actual detailed programs.
Budgeting is hard for many people because they are unsure how to project the future. Don’t worry, if you know your business, you can give an educatde guess of future expenses. One thing harder than budgeting is running a business without a budget.
Where do you get budget numbers? How do you set a budget and organize it? What are some standard ways to measure your budget?
There are several approaches you can take to create your budget. Examples of these approaches may include basing your budget on:
Percent of projected gross sales.
- Percent of past gross sales.
- Per unit sales.
- Seasonal allocation.
- Projected cash flow.
Select a budget methodology that will work best for your business. You may want to make this choice based on how you track your sales and revenues, or based on industry standards.
Keep the Process in Perspective
Don’t forget your fundamentals: your marketing should focus on educating the customer about the benefits they want, and differentiating you from the competition. A budget is both an educated guess and a management tool.
Keep the budget process in perspective. You are making a series of educated guesses. If it makes you feel better, remind your audience how you came up with your projections in your marketing plan. For this same reason, it is important to review your budget throughout the year and make adjustments when necessary.
One of the best ways to create your budget may be to build your projections on the previous year’s performance. If you have this information, the foundation is in place. Look at trends and expectations in each area and modify these numbers based on your expectations for the upcoming year. Look at industry performance and trends and take those factors into consideration. Once you get to the bottom line, ask yourself if it is realistic, or if you need to go back and modify revenues or expenses to more closely capture what you expect to happen in the year ahead.
When You Don’t Have Past Data to Compare
Yes, it is harder to set budgets when you don’t have past budgets to go on. Still, even a new company needs a budget.
If you do not have historical data available, the process is more challenging, but still doable. Your reliance on industry information is going to be greater and it will require more research to formulate your projections. Take advantage of the tremendous amount of marketing information through resources that may be available at no cost. In most cases, each industry will have a trade association, a website, and at least one publication in existence.
You may also be able to leverage information from other industries that might provide you additional insight. For example, a restaurant may want to know more about new home construction projections in their immediate area as they attempt to predict next year’s growth.
Creativity is a Budget’s Best Friend
There are ways to reap enormous marketing benefits from free activities, barter, alliances, and public relations.
You may also want to consider some non-traditional ways of maximizing your budget dollars and including those into your budget projections. A large percentage of advertising on the radio is on a barter basis. Manufacturers may offer co-op dollars for advertising efforts. Magazines may extend your payment schedule to allow you to generate sales from the ad before you pay the balance.