How To Calculate Marketing Budget For Beginners [Complete Guide]

Do you know how important a well-crafted marketing budget can be to the success of your business? When deciding on your marketing budget, there are many factors to consider when creating the most profitable strategy. 

From digital advertising and SEO to content creation and social media engagement, crafting an effective plan with appropriate spending is essential to reach potential customers and drive sales.

Creating a marketing budget can be tough, especially if you’re new to the game. How much should you allocate for each specific type of marketing? What factors should you consider when setting a budget? It’s hard to know where to start. We’ll show you how to calculate your marketing budget and get the best return on investment (ROI). 

We’ll also dive into why having a carefully constructed marketing budget is so crucial for any business looking to establish itself in today’s competitive market.

The Importance of a Marketing Budget

Business success is heavily dependent on effective marketing strategies. Even with a great product or service, without advertising, potential customers won’t even know that it exists. 

However, creating and implementing an effective marketing plan requires more than just brainstorming and creativity; businesses must also make sure to dedicate enough of their budget to cover the costs associated with running campaigns. 

This means that setting a reliable and reasonable marketing budget should be critical for any successful business looking to reach its goals.

A well-structured budgeting approach allows businesses to allocate their resources to the tactics that will bring in the highest returns. Having a predetermined marketing budget also highlights areas where further investment is needed and assists in providing guidelines for what should be prioritized. 

We’ll explain more about how to craft a marketing budget for beginners below. 

Steps to Create a Marketing Budget Plan

Step One: Set Your Goals 

Before you even think about allocating resources, it’s important to set clear goals for your business. 

Do you want to grow sales by 10%, increase brand awareness, or expand your customer base? Whatever your goal is, make sure it’s measurable so that you can track progress. This will also help inform which types of marketing strategies would be most effective in helping you achieve them. Marketing budgets will differ depending on each company’s individual goals.

Step Two: Calculate Your Marketing Budget 

Once you have an idea of what your goals are and what kind of strategies would be most effective in achieving them, it’s time to figure out how much money to allocate towards your marketing efforts. 

Start by looking at last year’s budget and see if there were any areas where money was being wasted or underutilized. Then compare that number with the overall financial position of your business and decide on an amount that is both realistic and achievable. 

To get an accurate assessment of resources available for marketing, consider other departments such as sales, operations, IT, etc. Read on to learn some helpful formulas to get financial insight that will help you calculate your marketing budget. Even if you’re new to the game, we’ve made this “marketing budget for beginners” guide easily digestible.

Step Three: Allocate Resources Wisely 

Now that you know how much money is available for your annual marketing budget, it’s time to start thinking about where those funds should go. Research different types of campaigns and figure out which ones will give you the biggest return on investment (ROI). 

For example, if one campaign costs twice as much but will bring in three times as many customers as another strategy would, then it may be worth investing more in that option instead. This is why setting measurable goals in step one is so important – you’ll have something concrete to measure success against. 

Understand which tactics are right for B2B or B2C audiences and assign budgets accordingly. It could be anything from email campaigns or social media ads to content creation or website design – just make sure the allocation reflects the strategy’s ROI potential. 

Below are some helpful formulas to use when calculating marketing budgets for different types of businesses.

Calculate Your Average Cost Per Lead

The cost per lead (CPL) formula is used to show how much money must be spent on marketing to acquire a new lead. It’s a straightforward way to gauge how effectively your marketing initiatives are working.

The formula for CPL:

Divide the total marketing expense by the number of leads produced. 

For example: If you invest $100,000 in marketing and produce 1,000 leads, for instance, your cost is $100 per lead.

You can use this formula to work out your CPL for each different marketing channel you use. This will give you insight into which channels are more profitable and which need more help. For example, Facebook might be bringing more leads with a higher close rate than Instagram, so you can make a decision on how to allocate more funds for higher profits with this information.

What is a good cost per lead? 

A definitive response is difficult to give because the typical expenditure will be different according to each industry and business size. You might get this common answer from a Google search: $50 to $300, but this information is based on outdated information. 

The average CPL was $198 according to an often referenced Hubspot research from 2017, but the study only used 350 businesses of different sizes and industries. 

In short – you need to do more research on your industry for an ideal CPL, and it will be proportional to your business’s financial position.

Calculate Your Average Conversion Rate

Having leads is fantastic, but if you can’t turn them into paying clients, they’re just a vanity measure that won’t help you achieve your company objectives.

What really matters is how many of these leads are converting.

The Formula for calculating the conversion rate:

The number of sales divided by the number of leads.

Your average conversion rate, for instance, would be 5% if you generated 1,000 new leads, but only 50 of them converted to clients.

Helpful to note when it comes to conversion rate data:

  • If you don’t have access to internal reporting data, it can be more difficult to establish your marketing budget. Without data, you are just tossing money into the wind and hoping it drops in the right spot. 
  • Spend a little money on the appropriate marketing technologies – like ActiveCampaign. A marketing automation platform can be useful for generating and nurturing leads, and determining attribution, cost per lead, and conversion rates. 

How many leads do you need?

The next thing you need to do is calculate how many leads your business will require.

Divide your new customer objective by your average conversion rate for the most accurate answer.

Let’s be optimistic and say your business wants to acquire 100 new clients at a 10% average conversion rate.

That’s 100 ÷ 0.1 = 1,000

To reach your target of 100 new clients, you will need to produce at least 1,000 new leads.

Costs of Your Final Conversions

You can refer back to your CPL estimate to determine your ultimate marketing spend after you know how many leads you need to reach your goals. 

Suppose you require 1,000 new leads and your typical lead generation cost is $100.

To acquire your ultimate marketing budget, just add the two figures together.

1,000 x $100 = $100,000

That means your business should budget at least $100,000 for marketing expenses for the future year to acquire 100 new clients.

It could be advantageous to pay more for leads that are more likely to convert into customers if your CPL rises, but your conversion rate significantly improves as a result. Of course, making informed judgments about your marketing budget strategy requires having the correct data at hand. 

What Should Your Marketing Budget Be?

There is no one answer to this question because the right marketing budget for a business-to-business (B2B) company depends on several factors, such as:

  • the size of the business
  • the target market
  • the types of marketing activities being done
  • the marketing goals (and high-level company goals)
  • and the financial resources of the business.

That being said, the percentage of sales method is a common way to figure out a marketing budget. In this method, the marketing budget is a percentage of the expected sales for the year. 

Depending on the business and industry, the percentage can be anywhere from 5% to 20% of expected sales. This is a good place to start.

For example, if a B2B business expects to make $1 million in sales in a given year, a marketing budget of 5–10% would be $50,000–$100,000. But this is just a starting point, and the budget needs to be changed as needed based on what the business needs and what its goals are.

In the end, the most important thing is to figure out how to spend the marketing budget in a way that will get the best return on investment and help the business reach its marketing and sales goals.

In this marketing budget for beginners guide, we have some formulas to share that will give you more information to make a decision on your budget.

Copy our marketing budget worksheet below for some extra tips.

Marketing Budget: FAQs

Why is a marketing budget important?

It helps a business put its marketing efforts in the right order based on the goals and objectives of the business. It lets a business keep track of and measure how well its marketing efforts are working, which is important for making smart choices about how to market in the future. A budget also keeps the business from overspending and putting stress on its finances. It will also help business stay competitive by making sure it spends money on the right kinds of marketing.

What kinds of costs are in a budget for marketing?

The costs associated with a marketing budget often include advertising, promotion, and public relations activities. Advertising can refer to all paid forms of media, including television, radio, print, and digital ads. Promotion is the process of getting customers to use your product or service. This includes activities such as in-store displays or giveaways at events.

Wrapping Up: How To Calculate Marketing Budget for Beginners

Follow the steps outlined above: set goals, calculate budget amounts accurately based on past performance and current financial standings, and allocate resources wisely to ensure that your company has a successful marketing budget with room for growth over time.

Remember that the key is finding ways to maximize ROI while still spending within reason – because ultimately, it’s not just about getting more customers but also making sure they stick around long-term. When you’re learning how to calculate marketing budgets for your business, know there will be some trial and error, but you’ll get there.

Need help with your marketing and customer acquisition strategy? We can help. Scaling With Systems develops profitable client acquisition systems that B2B businesses and entrepreneurs can use to skyrocket their growth. Learn how we can help you by booking a free consultation call today.

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