The amount you plan to spend on paid promotion for your products, services, or brand. It is budgeted for a set time period such as monthly, quarterly, or over a year.
This is distinct from the marketing budget, which is an umbrella covering advertising budgets along with other business activities like direct marketing.
This budget includes all advertising costs such as:
- surveying the market
- ad design and production
- running ads measured by impressions or clicks
- hiring consultants or an agency
- and more.
In 2022, businesses across all industries increased their marketing budget to 9.5% of total revenue. Much of this increase went to digital marketing. Meanwhile, traditional marketing formats like television and newspaper advertising have fallen by 20.7%.
This is in large part because people are increasingly looking for their goods and services online. In fact, 76% of U.S. adults shopped online with a smartphone in 2022. However, that’s an average.
Some demographics will still make purchasing decisions after viewing more traditional ad formats. Businesses need to understand their target demographics to budget appropriately to plan effective advertising campaigns.
Advertising and marketing budget: Defined
Your advertising budget is how much you’re spending on promoting your brand, goods, or services.
Advertising and marketing budgets are closely related. However, there are distinct differences between the two.
Marketing is an umbrella term for all of the activities a business uses to interact with prospective and current customers. Advertising is one component of that marketing strategy, but there are other aspects to marketing including loyalty and rewards programs and market research. We’ll focus on advertising and marketing budgets here.
Why is it important to have separate advertising and marketing budgets?
Customer attention is hard to capture in both online and real world spaces. It’s competitive across all markets. Every year, rival companies are creating more compelling and slickly produced ads and marketing materials.
In order to attract an audience to your brand, you need to market. However, marketing is a vast and sometimes costly set of strategies. No two businesses will find success with the same template.
It’s easy to lose a lot of money on unproductive strategies and channels. On the other hand, sometimes the most expensive marketing investments yield the best results. When you build a budget for your business and carefully analyze the results, you orient the company toward marketplace success.
Advantages of having a set budget
A set budget builds predictability into your marketing and advertising cycle. Your marketing department can clearly understand how much they have to work with and when these funds are available. This allows them to craft better ad campaigns and implement a successful marketing strategy.
Each marketing channel is assured of having enough allocated funds to perform well. The company also has the peace of mind that there will be no last-minute expenses or budget discrepancies.
You may avoid unnecessary expenses like late fees and will be able to clearly see when accounts have unusual activity. These issues could end up deflating product launches and tarnishing the brand’s name.
Setting a budget improves your business’s focus on goals and results. Advertising can be scaled at a deliberate pace without interfering with other, upcoming expenses. You’re making company decisions that are solidly rooted in the data and can track year-over-year progress.
A set budget may also act as a guide in financially difficult times. The budget tells you how to protect your most productive marketing avenues, giving them the necessary funds to continue generating sales and interest. Meanwhile, clear underperformers can be cut or set aside for re-evaluation during the next budget planning cycle.
Challenges of working with no budget allocation
Where is the marketing money coming from? Where is it going? Unless you have a clear budget, you don’t know the answers to these questions.
Lack of advertising budget allocation can lead to a number of problems. First of all, if you skip investing the time to work this out on the front end, your business could easily end up paying more. Some marketing spend can easily balloon unless they’re kept under strict control.
These skyrocketing costs are eventually recovered from your product’s purchasers. Higher prices make your business less competitive on the market. You may struggle to retain customers.
An underdeveloped budget plan, or no distinct allocation at all, introduces fuzziness to many critical business decisions.
Budget uncertainty can cost you money now and in the future. Your marketing specialists may struggle to design effective ad campaigns and either overshoot or undershoot the funds available. It can also be difficult to factor in other expenses as you plan the year. Will you be able to upgrade equipment before the Christmas rush or hire that social media advisor you need? When you aren’t sure about the advertising budget, you can’t give definite answers elsewhere.
How much should you spend on marketing and advertising?
Ad budget creation is a cycle that begins with a current assessment. This initial knowledge is used to develop a budget that establishes your marketing priorities. Your company then measures key performance indicators and uses these to refine your next budget plan.
Assess your current situation
Creating a budget starts with getting a clear look at where your company is right now. What is your business currently spending on marketing? What percentage of this falls to advertising expenses?
If you’ve been operating without a specific marketing budget allocation, or have only a fuzzy one, this assessment may take some time. It’s worthwhile to dive into your expenses and come up with solid figures. This will give you a starting point based on facts. It can also help you measure future success and performance.
Next, determine your goals for this budget. Ask yourself:
- Who is your target audience, and what are their demographics?
- Where might they interact with your brand?
- What items or services might be of interest to them?
- How many channels will it take to reach your potential customers, and how long of an ad campaign will you need?
- What about advertising timing?
A detailed understanding of your target audience, combined with clear business goals, is a vital starting point for coming up with solid budget figures. However, business goals are just one part of effective budgeting. You’ll also need to assess your current ability to meet those goals with questions like:
- What’s your market position and ad spend?
- Where is that relative to your closest competitors?
- Are there unexplored corners of your market niche that you could expand into?
- Is it worth the expense to expand your niche in these directions?
- Are you predicting coming trends that mesh well with your business’s goods and services?
- What could it cost to get ahead of the competition by jumping on these trends first?
Now that you have the big-picture assessment and some general goals, it’s time to look more closely at what your company creates. What is your brand’s unique selling point? This is the one thing that puts you a cup above the competition. It is the value you offer and the problem that’s solved.
At the end of the day, that unique selling point may be the reason why customers choose your products and services over any others. You communicate this through a value proposition. This proposition clearly states why this product is the best option for that customer.
Set your budget
In this marketing and advertising budget, what funds will you need to cover both fixed and variable costs? Fixed costs are those expenses that tend to be the same no matter how many items you sell. When it comes to marketing, these may include:
- fixed fees for creatives and ad agencies
- hiring freelancers or other consultants
- potentially the wages or salary you pay employees in the marketing department
Variable marketing spend is volume-dependent. They shift depending on the number of people who view or interact with an advertisement. This may be presented as CPM, or cost per thousand advertising impressions. Other variable costs may be incurred through emails, text messages, physical mailings, printed ad media, and more.
Next, decide what percentage of your entire marketing budget is being allocated to different digital marketing channels, such as content marketing, social media marketing, etc.
You have a wide variety of options here, from SEO to SMS marketing to cultivating a presence on social media platforms. Each channel and campaign will need to have a defined marketing budget.
Note that different advertising channels may have wildly different rates for their solutions. This can be true even within a category. For instance, the cost-per-click on LinkedIn is five times higher than on Facebook. You’ll need to carefully consider how much to invest in each platform.
After this, establish the timeline for your marketing and advertising budget. Will it be annual? Some medium to small businesses find quarterly or monthly schedules more agile. Others prefer the predictability of planning out the coming year instead of having to re-evaluate the ad spend more frequently.
The right choice for you depends heavily on your business’s size and area of the market. For instance, very small companies may be well-positioned with a monthly timeline to take advantage of shifts in customer interests. On the other hand, a two-person operation may also struggle to find the time and revise their budget every month.
Finally, your budget plan needs to include an established process for review and adjustments.
Routine reviews help you defray costs, solve unforeseen issues, and streamline yearly budget reevaluations. The process will vary depending on your company's needs.
At a minimum, it should define who will conduct the review and when. This review will need to be coordinated with whoever has to sign off on changes to limit the time gap between the old and adjusted plans.
Prioritize your marketing efforts
Marketing is one of those business activities that can consume any amount of money spent on it. A good budget reigns in online marketing spending, but then it goes a step further. It helps you focus your resources of time, money, and human talent in the right direction. Your budget should clearly define your business’s priorities and give future marketing efforts a clear path to follow.
Part of that clarity comes from understanding what are the most effective marketing channels for your business. You can’t appropriately prioritize until you’ve identified these. These channels could include:
- Search engine optimization
- Traditional advertising
- Content marketing
- Social media marketing
- Offline advertising
- Online advertising
- Partnership marketing
- Trade shows
You may also find that the various platforms within these channels perform very differently for your brand.
For instance, travel and leisure-related companies may get a lot of traction on Instagram and Pinterest but struggle with engagement on Twitter. You’ll want to examine prior marketing campaigns on a granular level to determine which channels are effective now, which need more development before making a call, and which you can deprioritize.
Expected return on investment, or ROI, can be used to allocate funds and establish advertising budget strategy priorities. You calculate this from your marketing projects and look for positive ROI. This is an indicator that items in the budget should be prioritized in the future.
Campaigns that aren’t generating the expected ROI can be modified or phased out.
However, ROI is not the only metric that matters. There’s a case to be made for spending a controlled amount of your budget exploring new channels and new markets. Even if it isn’t generating a lot of leads right now, you may slowly build momentum while learning more about future opportunities.
Some businesses suggest allocating an overall marketing budget using the 70-20-10 rule. Here, 70% of the marketing budget is earmarked for proven strategies. An additional 20% goes to new strategies, while 10% is reserved for experiments. The 30% spent on unproven strategies may or may not be financially profitable. However, they can highlight areas where your brand could grow in the future.
Culture, consumers, and the market itself is constantly evolving. Your marketing efforts need to change with the times, too.
This is why it’s necessary to continually test your marketing efforts and experiment with new strategies and channels.
Set SMART goals and metrics (Specific, Measurable, Attainable, Relevant, and Time-bound). Decide on what key results you are looking for, and evaluate how close you’re getting. These will help you track your progress, develop a marketing strategy, and refine your marketing budget.
Measure your success
Your ability to make reliable and accurate business decisions rests on getting hard data. Start by defining your objectives.
How will you measure whether your goals are being met? What methods will you use to collect the data, and on what timeline? Are there any measurements from previous years that you can compare this information to?
Identify what key performance indicators (KPIs) you want to focus on. There are a wide variety of clear, measurable KPIs that can help you determine if this budget is working.
Once you’ve collected KPIs, the information needs to be analyzed.
How are your marketing and advertising strategies performing? Are there areas where they can be streamlined? How will you optimize next year’s budget?
You’ll want to make decisions based on data but tempered with an eye on the future. The budget that worked beautifully for last year may need to be reworked for next year’s anticipated challenges and opportunities.
One of the keys to determining your budget is remembering that marketing budgets are not static.
Even the most detailed, carefully-considered plan can fail when it meets the complexity of the real world. You can’t just set a budget and walk away. It needs to be regularly monitored and adjusted as needed.
If you’ve done the work to define measurable goals and your KPIs, it should be clear how a campaign is performing.
Once you know that, you can make adjustments. Budgets should have room to pivot built into them. This helps a company stay agile in an uncertain marketplace.
Reevaluate your budget yearly
A set budget worked out in detail acts like scaffolding, helping your business market itself effectively. However, every year the market changes. This brings new opportunities and new challenges. The budget that’s worked well so far may start falling short.
It’s important to re-evaluate whether your current budget is still serving your company, or whether it’s holding back growth and stability. You may need to change your allocation percentages, shift to a shorter timeline, or explore new marketing channels. A reevaluation every year, if not more often, lets you course correct your marketing and advertising budget.
The landscape of the advertising industry has changed in recent years, but one thing is still true: email subscriber lists are one of the most effective ways to market to customers. Mailchimp excels at email marketing and offers a variety of powerful analytics for users.
These include insights into audience behavior, content optimization, A/B testing, and more. Tools like these let you check if your current marketing budget is due for review.