Determining a marketing budget for the year can be a rigorous task for any small to medium sized business. Where do we begin? What have we already committed to? What are the necessary marketing mediums that we can’t get rid of? What’s working? What’s generating return on investment for our company?
These are all difficult questions to answer when you are considering your marketing strategy and budget for the upcoming year.
There are four crucial questions you should answer when you are forming your annual marketing budget:
- What are the growth goals you have set out for your company?
- How are your ideal client segments influenced and how do they make decisions?
- What is your customer lifetime value?
- What are the competitors in your space doing form a marketing standpoint?
The growth goals that you have outlined for your company are an important factor in determining what your marketing budget is for the year. As a baseline, in the franchise world most franchisees pay somewhere between 3%-7% of their top-line revenue towards an advertising spend from head office. Using that as a benchmark we are able to assign numbers of your top-line revenue depending on how much you want to grow. Competitors in the space as well as the market size will also play an important role in deciding your growth goals.
Ideal Customer Behaviour
When you analyze your ideal customer segments and the buyer journey of those customer segments you will start to see trends in how these individuals think and behave. This may include where they go in their daily lives, but also where they go in the digital world. These are important factors to consider when you are building your marketing strategy and budget. Are you spending too much money in places where your ideal customers aren’t going? Are you underspending in areas where your customers make decisions and are potentially losing sales to your competitors? This is of utmost importance when thinking about the spends you are going to make in certain areas. For example, we had a client who heard that Facebook could be a fantastic marketing medium. After researching their target market we found that their ideal segments were not using Facebook at all. They had the right idea, and great messaging but were not putting their money in the most valuable place in order to set themselves up to be successful.
Customer Lifetime Value
When determining your marketing budget for the year it is important to consider your current Customer Lifetime Value. By collecting general metrics about your business such as how big the market is, or how many leads that you get per year, you can estimate a percentage of people that will convert into sales. Then attaching a customer lifetime value to each one of those sales you will start to understand a little more about the potential for your marketing strategy.
Everything else being equal, are you spending enough money per year to not only be profitable now, but to be profitable in the coming years as well?
Where the competitors in your industry and space are going is an important trend to evaluate when you are creating and tailoring a budget for your year. You want to make sure that you are not wasting money on mediums where your message is not going to have much of an opportunity to break through the noise.
For example – if your industry is overserved in the Youtube how-to video world it probably doesn’t make much sense to spend money creating the same content as everyone else. The other videos will have thousands if not more views and it will be tough to get your message out to those searchers. Now the opposite is true as well for underserved opportunities. If none of your competitors are doing it yet then maybe there is an underpriced, high return available.
An interesting metric to watch is your SIS (Search Impression Share) on Google Adwords to see how your Adwords spend is relative to all of the competing companies. If you are not appearing in enough searches per month, but Google is your biggest driver of business, it is probably time to divert money from other sources to get into more Google searches.
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