How to Calculate Your Marketing Budget

When meeting potential most potential clients, I always have to ask the dreaded question – what’s your marketing budget?

Sometimes, I get a blank stare and a shrug. And there’s nothing wrong with that. Unless you are a marketing expert, you will find it challenging to create a marketing budget breakdown and determine how much money should be spent on various marketing campaigns.

Calculating your Marketing Budget

Marketing Budget

How much should you spend on marketing? Well, the answer depends on your marketing objectives and the estimated amount you can safely invest. A recent CMO survey revealed that most CMOs spent between 9.4 percent and 12.1 percent of their total business budget on marketing. This number varies from industry to industry.

Preston Martelly, a marketing expert at JavaLogix, recommends allocating 20% to 30% of your profits to marketing. To figure out your company’s marketing budget, you will need to factor in all the overhead costs of the marketing department, such as marketing tools, staff, and training. Alternatively, you can outsource the marketing function to a reliable digital marketing agency.

Set your Company’s Revenue & New Client Goals

You need to set SMART goals for your company’s revenue and new client acquisition. How much income do you want your business’s marketing department to generate? How many new clients do you need to achieve your revenue goals?

To get an accurate answer, you need to consult with your investors, board of directors, and a marketing expert. If you are a solopreneur, you may need to calculate the number on your own or consult with a marketing expert.

If your company should acquire 50 new customers within 12 months, you need to analyze some issues to determine your marketing budget. Instead of focusing on how much cash you should be allocated to your marketing activities, think about the resources you need to acquire 50 new customers.

What’s the average cost per lead? Actually, this is the number of resources you must spend to acquire a new client. This is simpler than you think.

Divide the amount of money spent on marketing over the last month or year by the number of leads generated within the same period. For instance, if you spent $100,000 to generate 1000 leads, your cost per lead is $100.

marketing budget

Use this equation to determine your cost per lead for every marketing channel you use. This information can help you make the right decisions about how much you should allocate your marketing budget across various channels.

Calculate your Average Conversion Rate

Next, determine the rate at which the acquired leads convert and become paying clients. For instance, if you generated 1000 new leads, but only 50 of them become new clients, your business’s average conversion rate is 5 percent.  Just divide the number of conversions by the number of new leads you generated. Use this formula to determine the conversion rates for every marketing channel you use.

Note that you can use marketing automation tools to determine attribution, cost per new lead, and the overall conversion rate. This can simplify the process of determining your business’s marketing budget.

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