How to Build Your Marketing Budget

How comfortable are you with building and managing your marketing budget? 

Do you know how to make the best decisions for your business? Do you know where to allocate and spend your money? 

For many business owners, this is a daunting topic because of a lack of knowledge, experience, clarity, or all of the above. 

Let’s see if we can shed some light on the bigger questions and provide an intentional path forward that supports your business goals.

A table of contents is purposefully left off because this is an article you should read from start to finish. Jumping around will create confusion, so we recommend moving methodically through this piece to get the most out of it!

Marketing Budget 101

A marketing budget typically includes costs for advertising, promotions, public relations, and other initiatives aimed at building brand awareness and driving sales. It does not typically include the personnel overhead, but it should include any agency work you hire out for. 

The only exception to the agency work is if you hire an external brand management team, (like The Business of Marketing), you should look at that expense as equivalent to hiring an internal employee, but at a better rate because your brand management team is fractional. 

There are a few rules of thumb to follow when determining your marketing budget. Consider the following factors:

  • Revenue: It’s common practice to allocate a percentage of your revenue to marketing. The U.S. Small Business Administration recommends spending 7-8% of your gross revenue for marketing if you’re doing less than $5 million a year in sales and your net profit margin is in the 10-12% range. 
  • Industry Standards: Budget allocation varies widely by industry. For instance, consumer packaged goods might spend around 20-25% of their revenue on marketing, while B2B companies might spend 5-10%. Here are a few more industry examples:
    • Healthcare: ~18%
    • Manufacturing/Retail (of all kinds): ~13-14%
    • Tech companies: 13-14% of revenue (per Deloitte)
    • Banking/Finance/Insurance/Real Estate: ~8% of revenue (per Hubspot)
    • Education/Mining/Construction: ~3%
    • Energy: ~1%
  • Business Goals: Your marketing budget should support your business goals. If you’re launching a new product or entering a new market, you might need to allocate more funds to create impact.
    • But no matter what, do not spend on marketing until you have clearly defined your quantifiable business goals. The next step is understanding how your budgeted marketing expenses support those business goals. 
  • Historical Data: Look at past marketing campaigns to determine what worked and what didn’t. This can help you allocate funds more effectively.
    • If you don’t have any of your own, turn to a search engine for reference points. 

Steps to Assess Your Business’s Needs and Marketing Budget

As mentioned above, all of your marketing should support your business goals. We define business goals as part of a marketing strategy, which begins by clearly defining your brand strategy. Use each of these links for more information on what a brand strategy is, how to build a brand strategy, and what the difference is between a brand strategy and a marketing strategy. 

The steps to assess your business’s marketing budget needs are as follows:

1. Define Your Marketing Goals: What do you want to achieve? More website traffic, higher conversion rates, increased brand awareness? Higher revenue? Higher profit? Etc. 

2. Identify Your Target Audience: Who are they, and where do they spend their time? What are their behaviors? How do they consume content from your type of business? How do they make decisions about purchasing your type of product/service? 

3. Choose Your Marketing Channels and Build Your Marketing Plan: Based on your audience information, select the channels that will be most effective and design a content plan for them. 

4. Set Metrics and KPIs: These determine how you’ll measure success. Metrics are the specific data points you will track, while KPIs are the quantifiable goals you have for each meaningful metric. 

5. Allocate Your Budget: Based on the above, allocate your budget across different channels and strategies. You will want to be detail-oriented, but you will also want to leave room for adjustments and pivots throughout the year.

  1. Check out the formulas below to help you build your budget. 
  2. Build the actual budget in an Excel spreadsheet to make it easy to track your efforts. Try using this tool: Build Your Marketing Budget 

6. Monitor and Adjust: Continuously monitor performance and adjust your budget as needed.
There are plenty of data tools available to monitor your budgets. Ultimately, you are tracking your investment against the results you hope to achieve.

  1. Excel will always give you the most flexibility and freedom. There are pre-populated templates available to assist you if you choose the Excel route.
  2. If you prefer software, check out this analysis of the top players in the marketing budget management space.

Your Budget Relies on Formulas and Data Points

This may seem obvious, but your budget is NOT just a number you pick out of thin air. There are equations and strategic approaches to follow when you determine your marketing budget. Many companies prefer to say, “I want to spend XYZ on marketing this year.” But they have not done the work to decide what marketing is needed to support their business goals. 

Aside from the range of percents of revenue I outlined above, you will also want to consider the following formulas: 

  • Cost Per Acquisition (CPA): This measures the cost to acquire a new customer. It’s calculated by dividing the total marketing spend by the number of new customers acquired. Use this calculation to figure out how much you can afford to spend on marketing to acquire each new customer while still achieving your profit goals.
    • CPA = Total Marketing Spend ​/ Number of New Customers Acquired
    • If you are considering platforms like Google or Meta, you can set target CPAs so the platform automatically adjusts your bids. 
  • Return on Marketing Investment (ROMI): This measures the return you get from your marketing investment. It’s calculated by subtracting the marketing spend from the sales growth, then dividing by the marketing spend. It will be a percent.
    • ROMI = (Sales Growth − Marketing Spend​) / Marketing Spend
  • Customer Lifetime Value (CLV): This predicts the net profit attributed to the entire future relationship with a customer. If customers only have 1 opportunity to pay you, this will be relatively low. In that case, you might want to consider how you can encourage those customers to provide additional value to you in the form of reviews or referrals. You may also want to consider how you can extend your business lines to allow customers to make repeat purchases. If your business does allow repeat purchases, you will want to know the likelihood of conversion to a lifetime customer for a first-time customer coming in through marketing
    • CLV = Average Purchase Value × Purchase Frequency × Customer Lifespan

If you are just starting out with marketing, you will not know all of these numbers. That is okay! Allocate a portion of your budget to setting up tests to figure out what your CPA will be. To help set your expectations, look up the average CPAs of businesses in your industry. 

Organic vs. Paid Marketing

A well-rounded marketing budget will include both organic and paid strategies:

Organic Marketing Is Your Foundation

This includes SEO, content marketing, and social media engagement. It’s cost-effective and builds credibility over time. Allocate funds for tools and resources needed to create high-quality content. It is ideal for:

  • Long-term brand building to establish authority 
  • Engaging your existing audience to foster loyalty 
  • Limited budgets – it does require more time and effort though 
  • SEO and content marketing can drive traffic

Paid Marketing Gives You Strategic Boosts

This encompasses PPC campaigns, SEM, social media ads, media buys (TV/radio/podcasts/OOH/etc.), sponsorships, and influencer partnerships. Paid marketing can provide a quick boost in visibility and sales or allow you to reach a larger audience. Allocate funds based on the CPA and ROMI you aim to achieve. Paid marketing is more suitable for:

  • Immediate results 
  • Targeted campaigns to reach a specific audience (or retarget an audience)
  • Testing and scaling 
  • Complementing organic efforts to amplify reach 
  • Drive awareness of your offer 

An Integrated Approach

An integrated approach is always considered best. However, keep in mind that organic marketing will take longer than paid marketing to grow an audience, but that does not guarantee that your paid marketing will convert to revenue. As you’re trying to decide when to introduce paid marketing into the mix, here are a few rules of thumb to consider: 

  • Fully use the organic marketing (on the relevant channels for your audience) that is available to you before starting any paid marketing. When you direct people to your business with paid ads, you will want to make sure they are coming to a robust page that is filled with relevant content. That relevant content will be your organic marketing.
    • The only caveat to this is that if you do not want to create your own organic content, then you will need to hire someone to do that work for you. 
  • Before you pay a penny, know what your goals and KPIs are for the spend. Determine how you will measure success and be ready to pivot as you gain learnings. 
  • Putting money behind content is not enough. The content must be good for the specific audience you are targeting. Spend time identifying your audience and building content that appeals to them.
    • Be sure you know what stage of the buying journey they are in too: Awareness, Consideration, or Trial.
  • Be patient and expect to have to pivot and adapt. 

Industry Examples for Marketing Budget Allocations

Check out a few examples of marketing initiatives companies might consider by industry. This list is not exhaustive and your company’s budget should be built from your consumer and business goals. But you can use these to spark some ideas:

  • Retail businesses might focus more on social media advertising and influencer collaborations to drive traffic to their online stores.
  • A tech company might invest heavily in content marketing and SEO to establish thought leadership and drive organic traffic.
  • Service-based businesses may allocate more to local SEO and community events to build a strong local presence.
  • A consumer packaged goods (CPG) company might spend on research and development, consumer insights, packaging, out-of-home, in-store displays, social media, and target digital ads. 
  • A company in Banking, Finance, or Insurance might spend on website marketing, app marketing, and SEO to ensure convenience, data protection, and simplicity for their customers. 
  • A Real Estate company would likely want to invest in targeted digital ads, out-of-home display ads, social media ads, and presence on third-party websites their target frequents. 

If you need more ideas for your business’s industry or specific niche, do some research and see where and how the big players show up. Learning from others’ work and adapting their strategies for your own business can be a great start. 

If You Remember Nothing Else…

Remember, a marketing budget is built based on your business goals and financials, but it should also be adaptable. Be prepared to adjust it based on changes in your business environment and marketing effectiveness. By applying the strategies in this article and using the resources linked, you can create a marketing budget that helps you reach your target audience, engage with them effectively, and achieve your business goals. 

If you have any questions about how to accomplish this, take advantage of The Business of Marketing’s free intro strategy sessions and book some time with us. 

About Jules and The Business of Marketing

Julianna Francesca is the author of this article and the founder of The Business of Marketing (BOM), a marketing firm that specializes in brand management for companies of all sizes, across industries. Jules has over a decade of experience in brand marketing and brand management working for companies like Champion and MillerCoors, before creating The Business of Marketing in 2019 to bring effective and sustainable brand management to more businesses. Marketing is more science than art and The BOM, along with The BOM Method™ uses proven marketing strategies and tactics to grow businesses. Learn more about The Business of Marketing here.