Smart Marketing Tips: How to Determine Your Marketing Budget for the New Year

Happy New Year! With the hustle and bustle of the holiday season behind you, it’s time to start putting this year’s marketing goals into action. Over the course of the next month, Your Marketing People will offer insider tips and tricks to help grow your business this year through strategic marketing practices. This week, we’ll begin with something every business needs: a smart marketing budget.

Your marketing budget should reflect and align with your business and sales goals, whether your focus is on building brand awareness through social media, generating more qualified traffic through SEM and SEO, or increasing eCommerce sales. Deciding where to place your marketing spend will depend on a variety of factors, which we will discuss in more detail below. But first, read on to learn how to calculate your monthly budget with our forecasting model.

Forecast Your Budget

For any given month, you can estimate your budget by focusing on the goals you are trying to achieve. We’ll showcase how to make calculations for lead generation and eCommerce sales below.

“Your marketing budget should be realistic based on your company’s historical data, but remember that the data can also help you discover where to seize more opportunities with your marketing efforts,” says Emily Briggs, Your Marketing People’s Reporting Manager. “When making projections, start with your highest-performing channels and go down the list from there.”

1. Focus: Lead Generation

a. Start with your goal. This could be the number of leads, opportunities, or sales. This number will typically be based on historical statistics (i.e. leads generated in the previous year + projected % growth or decline (note: of course, we don’t aim toward a decline, but in some cases, you might have to account for this in your projections).

b. Calculate the budget. Use this equation: Budget = Goal for the month x Last’s month’s cost per goal. For instance, let’s say your cost per lead was $45 last month and you need 500 leads to reach your company quota, your budget will need to be 45 x 500 = $22,500.

Now there are a couple of items to keep in mind with this calculation:

  • Seasonality. Your business may be more profitable in some seasons over others (for instance, a university with application deadlines in only two or three months out of the year). If this is the case, you can calculate the percentage increase/decline in your budget by using year-over-year numbers. For example, if you’re projecting applications for September and it is after a deadline month:
    • August’s cost per lead is $98.
    • Last year’s cost per lead for August was $110, but September’s was $150.
    • Calculating the difference in percentage: (150 – 110)/150 = 26% increase.
    • Then, $98 x 1.26 = projected cost per lead for this September.
    • Incorporate the % change into the Budget calculation: Budget = Goal for the month x Last month’s cost per goal x (1 + % change)
  • Funnel. The simple calculation doesn’t take into consideration the full funnel, just the initial leads you need. This means that although you had 500 leads come in as sign-ups, that doesn’t mean all 500 will convert into customers (or applications, in our example), especially if you have a long lead cycle. Incorporate your conversion rate (Customers divided by Leads) to get a better understanding of how much business you will generate at the marketing budget of $22,500. For example:
    • Let’s say your business expenses are $50,000 per month, and your lifetime value of each customer (Average order value / (1 – Repeat purchase rate)) is approximately $1,500.
    • You’ll need 33 closed customers per month to break even: 50,000 / 1,500 = 33.
    • If your conversion rate is 5%, that means you’ll need 660 leads per month to stay afloat: 33 / .05 = 660.

Note: The conversion rate gives you the insight into the number of leads required to make your business profitable. We recommend investing in a CRM platform, such as HubSpot, so that your business can track how many leads turned into customers from each channel.

2. Focus: eCommerce

a. Start with your goal. In eCommerce, the goal is typically sales and profitability, but the trick is to find the sweet spot between spending enough to generate revenue, while still remaining profitable. Keep in mind that your estimates should be based on your previous year’s sales.

b. Calculate the profit margin. This is the amount of money the business takes home from each sale. Your Gross Profit Margin (GPM) is the difference between revenue and cost of goods sold, divided by revenue. GPM = Revenue x Profit Margin % – Cost

c. Use Gross Profit Margin to discover profitability. This calculation is crucial to driving your budget for marketing campaigns, as you discover which campaigns are profitable and which aren’t. Here’s an example:

  • Your budget is $50,000 per month in expenses, and average order value is $500.
  • You make 18% from each order, so $90 per order (500 x .18).
  • Goal for Number of Sales = Expenses / (Average Order Value x GPM). 50,000 / (500 x .18) = 555. You’ll need 555 orders per month to break even.

Note: Each channel is going to have a different cost per acquisition, conversion rate, and average order value or lifetime value, so you’ll need to calculate your budget separately by channel.

d. Keep in mind the multi-attribution model. Shopping campaigns might not always be profitable when you look at the numbers, but the ad could play a role in persuading the customer to eventually make a purchase. You can test your ads by decreasing some of the spend on certain campaigns and seeing the effect on the total account.

Five Essential Factors When Planning Your Budget

Although not every marketing trend will become an important factor for your business, staying aware of what’s new in the marketing landscape is necessary. Here are five marketing trends to keep an eye on and potentially incorporate into your marketing plans this year:

1. Personalized content is a necessity.

Advertising is literally everywhere people go, from mail and billboards to their phones and the search queries they key into Google. With all the data available to marketers, it’s even more important for your messages to stray away from being generic. SEM, paid social, and email marketing provides endless opportunities to help you zero in on your ideal audience’s wants and hesitations, so you can use your messaging to engage them.

2. Content marketing is on the rise.

Blogging, social media posts, videos, and other content channels are becoming increasingly popular ways to reach your audience and keep them coming back for more. Search Engine Watch reports that 70% of B2B content marketers say their company’s content is more successful compared to the previous year, and half of the respondents projected their content marketing budgets to grow in the next year. Brainstorm which channels your ideal customers will engage with the most, and focus on creating frequent, quality content to build your brand.

3. Limit your channels.

When businesses use too many marketing channels, perhaps in hopes of gaining greater brand recognition, it is not always a smart ROI. Research your customers and discover more about your ideal audience. Moving marketing dollars toward targeting people who show interest in your company or similar products is a smarter investment than trying to reach people through every possible channel.  

Even within a channel, like social media, your ideal audience may not use certain platforms—maybe they prefer image-heavy Instagram to purely textual Twitter. Look deeper into your data to determine which channels are performing best, and for the ones that are underperforming, perhaps it’s time to move wasted spend elsewhere.

4. Include software expenses.

Consider which marketing software tools your company could benefit from. Would CRM software such as HubSpot help you streamline your inbound marketing and sales, saving you time and money in the long run? Do your research and include software costs in your projections before signing up for new programs/tools.

5. Determine your team’s workload.

If you want to grow your marketing efforts, you need to have the manpower to put your plans into action. Whether your team is all in-house or you outsource some or all of your marketing work, make sure your team has the bandwidth to achieve the goals you’ve set forth or look for help outside.

Be Adaptable to Stay Relevant

With evolving technology and new marketing trends already making headway, the one constant in digital marketing is that there will always be change. The good news is that the new year brings fresh opportunities to grow your business through smart marketing. Make a plan this year to stay abreast of what’s new in marketing (everything from Google’s changing algorithm in SEO to how artificial intelligence will affect your industry). Let Your Marketing People help you be in the know by subscribing to our blog (sign up to the right!), and check back each week this month for more Smart Marketing Tips.