How a Comprehensive Marketing Budget Increases Profitability

Do you want to decrease your marketing expenses? This sounds like a great idea in theory, and many business owners tell us they want to reduce their marketing costs. There are usually two huge problems in these situations.

The first problem is that many of these businesses don’t even have a budget, let alone a marketing budget. This means when they cut marketing expenses, they are flying totally blind. How do you know where to cut if you don’t even know where you are spending money?

This is why you need to make sure you know all the details of your marketing budget. This means you need a budget for your business, and you need to allocate a certain amount of that budget to marketing. Within your marketing budget, you then need to decide how that money is allocated to individual marketing campaigns.

The second problem is approaching marketing as a pure expense. Cutting marketing costs to decrease your expenses with the hopes of increasing your profit rarely works. This is because you need to consider the return on investment (ROI) of each marketing campaign.

If you don’t know the ROI, you may end up cutting a marketing expense that decreases your profit. This is because that marketing expense was generating more incremental revenue than it cost as an expense. It was a profitable marketing campaign. A better strategy is to look for unprofitable campaigns to cut and profitable campaigns to expand upon.

Have a General Business Budget

You really need a general business budget before you can develop your marketing budget. Only with an actual business budget will you know your expected revenues and expenses for a given time period. That information is critical to developing the marketing aspect of your budget.

Trying to create a marketing budget outside the context of a larger business budget will not help your business, and may actually create more problems. It would be like budgeting for an apartment without also considering your income or other big expenses like your transportation and food. You need to consider the big picture, your business budget, and how your marketing budget fits within that.

Have a Marketing Budget

Your general business budget should include an amount for marketing. This ideal marketing budget is often calculated and expressed as a percentage of revenue. Your marketing budget should also be backed by a marketing plan.

If your business has been around for a year or longer, you can look at your historical financial data to help organize your marketing budget. Just make sure to also think about things that will be different in the following year. Your budget for next year should not just be a copy of actual spending from the previous year.

Creating a budget can be the most difficult when you’re starting a new business or launching a new product or service. In these scenarios, you likely will need to do some research, investigating, and maybe even some educated guesswork. Hopefully you already gathered some of this information when planning your business.

Breaking Down the Marketing Budget

Once you know what resources are available for marketing, it’s time to group that money into categories or even individual marketing campaigns. Some money will be dedicated to indirect things like strategy, website design and marketing software. And the rest of your money will be dedicated to marketing communication like advertising campaigns.

Advertising and Other Marketing Communications

When most people think of marketing, they think of marketing communications. For that reason, we’ll start with those categories. Specifically, people usually think about direct marketing and other forms of advertising first. This isn’t the only aspect of marketing, but it’s an important area and you’ll likely devote a lot of your resources to it.

Direct-response Marketing

Direct marketing (or direct-response marketing) is the most obvious form of marketing. These promotional campaigns communicate directly with your target audience. This is a big part of most advertising and marketing for most businesses.

It’s hard to know exactly how huge direct marketing is because of the diversity of methods and channels that are available now. The Data & Marketing Association (DMA) reported that $168.5 billion was spent on direct marketing in 2012. The DMA said this accounts for 52.7% of all advertising and generated over $2 trillion in incremental sales.

With those type of numbers, you can see why this type of advertising is the most effective in terms of return on investment (ROI) when done correctly. It also makes it the most hated by customers when done incorrectly.

This means as a business you should to dedicate a lot of your resources to direct marketing. Traditionally, this would mean advertising in newspapers and magazines and by sending direct mail like fliers and catalogs. In the digital world, this means things like email, text messages, and online ads on Google and Facebook.

Brand Advertising

There are other types of marketing communications that your business may want to use as well. Direct-response marketing may be the easiest and simplest to understand and execute. That doesn’t mean it’s the only game in town, so you may want to diversify your strategy.

Another popular type of advertising involves branding to build awareness and loyalty. Branding can be very powerful, but you need to have a brand first. Building and advertising your brand requires a concrete strategy coupled with creativity and patience. The process is time-consuming and expensive when compared to the often quick results of direct marketing.

But the results are worth it, if done correctly. For example, Interbrand reported in 2016 that the Coca-Cola brand, ranked third globally, was worth $73 billion. Apple’s brand was worth $178 billion and ranked first globally. Coca-Cola’s brand value has remained constant since 2000. Apple’s brand value has risen from $6 billion in the same time period.

This shows us that Coca-Cola, that’s been around since 1886, has built a brand that is resilient. Apple on the other hand, is a relatively new brand. It was founded in 1976, but only really became a powerhouse global brand with its rebranding from Apple Computer to Apple, the release of the iPhone in 2007, and their subsequent success in the mobile device space.

If you’re trying to build a brand with your business, you’ll want to dedicate some of your marketing budget to branding campaigns as well. If your brand is not fully fleshed out, you may want to invest some resources in brand development and strategy.

Public Relations

Public relations (PR) is another vehicle you can use to increase the public exposure of your business. This is generally done by building and maintaining relationships with people in the news media and other organizations that can provide third-party exposure to your business or its products and services.

The main difference between PR and advertising is that PR is generally free. The big catch, is that your business or product has to have a great newsworthy story to get this free coverage. And this is where the marketing costs come into play.

You will need to hire a PR firm to find that newsworthy story, build those relationships with the media, and pitch the story of your business to relevant journalists. If you don’t have an outside firm, you or one of your employees will have to do that work in-house. In either event, that cost will be the PR expense in your marketing budget.

One final thing to note is that some PR, especially online, has fallen into a murky pay-to-play situation. This is due to a variety of reasons that are beyond the scope of this post. What you need to know is that some journalists will now accept money in exchange for coverage.

Your mileage may vary in situations where you pay for PR exposure. It can be a total waste of money, but it certainly does work for some businesses who know what they’re doing. The trend is probably only going to become more common in the short run given the rise of influencers.

Now to be clear, most influencers are not journalists. Influencers are normally celebrities or other influential people with a large online following. These influencers have proven out the business model of paying for widespread exposure. It’s usually, but not always, on social media platforms like Facebook, Instagram, and Twitter.

Most journalists are not influencers, in the sense that they don’t accept money in exchange for publicity. However, a meaningful minority do, and this changed how some businesses handle PR. This is especially true for businesses who have big budgets, want fast results, and don’t see the value in creating a newsworthy story for their business.

Unless you really do your research, we recommend you avoid paying for PR coverage. Save your money for other paid advertising that we discussed earlier. Focus your PR marketing budget on creating a killer story that reputable news reporters will want to run for free.

If you are going to pay for endorsements, we recommend you focus on other influencers who are not journalists. It will be easier to abide by the truth-in-advertising standards within the FTC rules on paid endorsements and native advertising. Basically, the influencer discloses that they were paid for the endorsement, and according to the FTC this avoids misleading consumers.

Other Marketing Communications

Marketing communication also extends beyond advertising and PR. Personal selling is one that a lot of businesses engage in. It can also include things like sponsorships, guerilla marketing efforts, and really any other way your business communicates with potential customers or the public at large.

Personal sales is what most people would call sales, where a sales representative directly sells a product or service to the end customer. In this scenario, your marketing expense is the wages or commissions this person is paid. If you have a sales team, or if other employees sometimes act in this capacity, you should allocate some or all of their labor cost to the marketing section of your budget.

Other Important Aspects of Marketing

A common misconception is that marketing is only marketing communication. However, marketing communication is just one aspect of marketing. Some incorrectly think of marketing as an even narrower field, thinking it’s just sales or just advertising.

That’s unfortunate, because these more indirect things are some of the most important aspects of marketing and can drastically increase the ROI of your promotional marketing campaigns. They are just often overlooked because they are not directly associated with promoting products or services.

Strategic Marketing Plan

Many business owners jump right into tactical items like building advertising campaigns. This can work if you have good intuition and get lucky. However, more often than not, this method fails. And while it doesn’t always fail right away, it does always fail eventually.

This is why you need to create a strategic marketing plan first. Your plan outlines what sort of marketing activities you will engage in as a business. And ideally, it should be part of a larger strategic business plan for your entire operation.

The cost of a strategic marketing plan is usually front-loaded with most of the expense being in the first year of a business. Then they’ll be a smaller expense on an ongoing basis to ensure your plan is up to date with your business goals.

You may also need to reinvest in redoing or expanding upon the strategic marketing plan when more substantial shifts occur within your business or the industry at large. Ignoring larger trends and not updating your plan will only make your marketing efforts become less and less effective.

For your plan to be successful, it should include metrics to measure the performance of marketing efforts within your company. If you have no way to measure the success of your marketing plan, you will never know if the money you spend planning was worth it. You will also struggle to improve or iterate on your plan for the same reason.

You should budget this expense based on the labor cost of your internal marketing team. Or if you hire a marketing agency or consultant, your expense would be whatever they charge to create and update your strategic marketing plan.

There are some other more specific aspects of developing a strategic marketing plan that you may or may not need to spend additional time or money on. Two of the most common are marketing research and market research.

Marketing Research

Marketing research, not to be confused with market research, can help you develop and execute your strategic marketing plan. This research is focused on your marketing efforts as a business.

Marketing research typically includes collecting, compiling and analyzing data related to your marketing efforts as a business. In terms of digital marketing this usually involves a combination of reviewing internal analytics data as well as data from advertising platforms you use like Facebook and Google.

Like with other strategic marketing planning your expense is limited to your internal labor cost or the cost of hiring outside agency and/or any other outside experts or consultants.

Market Research

Market research is the activity of studying a specific market, which is also important. This sort of research can help you define and isolate your target market (or target audience). It typically then involves researching the wants and needs of that target market to determine the best way to market your product.

This type of research is also helpful in determining how and why customers make certain choices related to your products or services. Part of market research also involves looking at your competition to find their strengths and weaknesses. You can then use this information to improve your strategy marketing plan and the tactics you use to execute on that plan.

The cost of this type of research is the same as marketing research and all other strategic marketing planning. The only cost is paying whatever experts you need to help gather the needed information and brainstorm ideas.

Marketing Foundations & Tools

There are even more expenses that business owners often fail to realize within marketing. They are the aspects of marketing that fall between the first steps of development of a strategic marketing plan and the final steps of executing and reviewing marketing communication campaigns.

Customer Service & Reputation Management

It may seem like a stretch, but customer service is most definitely a component of marketing. How you interact with your customers and the public determines your reputation. If you have a bunch of angry customers, they will spread the word about how your business has failed them.

It’s so easy for a single customer to tarnish your image with all of the social media platforms and other review sites at their disposal. A critical post, especially with photo or video evidence, can go viral in days or even hours. This is especially true if your angry customer is someone with a large social media following.

It’s much better to set aside some budget to developing good policies and properly training employees to offer great customer service. Then have an employee or marketing agency monitor your online reputation on all of the various sites. This is far cheaper than hiring a PR firm that specializes in crisis management when a huge kerfuffle occurs.

Website Design & Development

Some business owners think that a professional website costs too much money. However this is yet another marketing expense that will pay for itself many times over. Having a website that is well designed and tailored to maximize conversions can drastically increase the ROI of all other online marketing efforts.

People trust a business with a website more. And they rely on how professional a website looks to determine how much they trust that business. There are plenty of ways to get a website for your business at different prices points. You get what you pay for, but even a basic one-page professional site is better than nothing.

If you have no website or one that is old or poorly designed, you will lose potential customers. Worst of all, you won’t even know you missed them, because it all happened online before you knew they were a potential customer.

What’s Not Part of a Marketing Budget

Keeping in mind all of the different aspects that actually are marketing, you may start to wonder what exactly isn’t a marketing expense within your budget. The truth is marketing touches almost every aspect of your business.

That is because marketing really predates business in a lot of senses. The idea of companies and business is a new concept relatively speaking. Marketing is actually a function of commerce and not business. Commerce is an idea that dates to prehistoric time, and marketing goes back to at least ancient Rome.

It’s not crucial that you get every single item that is related to marketing in the marketing section of your budget. What is more important is that you develop a mindset that marketing is anything that helps you sell your products or services.

Once you have that mentality, you can start to look at marketing as a set of strategies and tools to help your business. Then you’ll start to realize that marketing is not an expense to be cut, but instead, it is an integral part of your business that needs to be optimized and managed.

Regularly Audit Your Marketing Budget

Given how important and all encompassing marketing is, you should do regular checkups on your marketing budget. You should do this by engaging in regular audits of your marketing budget. This is a vital part of running a successful business.

By doing regular audits, you can find good ways to increase your revenues and profitability. And, when needed, you’ll also easily find the marketing campaigns that need to be cut. By making cuts from the perspective of auditing your budget, you’ll make far better cuts than if you just cut to “save money.”

Have a comment or question about marketing budgets? Maybe you have a story about how planning or budgeting marketing made your business more or less successful. Let us know in the comments, and we’d be happy to discuss further.

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