In the marketing world, there are two approaches to setting marketing budgets. The first involves deciding to implement a specific tactic or program, and subsequently determining how much budget is required. The other is having a predetermined budget and figuring out how to utilize it most effectively.
While both approaches have their merits, my personal experience has led me to favor the latter approach. Operating from a budget-first position empowers marketers to strategically maximize their marketing investment. This method of budget-setting can not only elevate your marketing plan but can also transform your business.
Budget-First: Why it Works
Adopting a budget-first strategy comes with a multitude of advantages. First, and perhaps most importantly, it urges marketers to step back, prioritize their objectives, and allocate their resources in ways that most efficiently support their goals. This, in turn, increases the likelihood of executing a marketing strategy that significantly impacts the business.
Flexibility is another benefit. If a budget is allocated specifically for a particular tactic and it underperforms, it can be challenging to reallocate resources. However, a budget-first approach allows for quick pivots and adjustments as needed, making your strategy agile and more responsive to ever-changing market conditions.
Despite the clear benefits, many marketers avoid the budget-first approach due to uncertainty about what their spending limit should be. So, how do you calculate an optimal marketing budget?
Setting an Effective Marketing Budget
Determining the ideal marketing budget is not a one-size-fits-all process. It varies significantly from one company to another, based on factors such as your target audience, company size, and industry type. As a general rule of thumb, B2B marketing budgets are usually lower than those of B2C businesses.
Fortunately, there are a wealth of resources available to provide benchmarking data. Gartner, for instance, conducts an annual CMO survey and releases a comprehensive report on the State of Marketing Budget and Strategy. This year's report revealed that, on average, marketing budgets across all industries represent about 9.1% of total revenue.
In addition, the CMO Survey also offers invaluable insights and an alternate point of view. In a slight departure from Gartner’s results, their 2023 survey discovered that the average marketing budget accounted for 10.9% of a company's total revenue.
What is Included in a Marketing Budget?
When calculating a marketing budget, it's crucial to think through the various expenses. The major components typically include expenses like salaries, software investments, agency and consultant fees, and the hard costs of media and material production.
Navigating the complexities of marketing investments can be challenging, but adopting a budget-first approach can simplify the process. Being strategic about your budget allocation can facilitate a robust, flexible marketing plan that drives your business to new heights.