4 Steps to Calculating Your Marketing Budget (2024)

How much do you spend on marketing? How do you decide what the right amount is? When do you set your budget and how flexible is it?

Marketing spending shouldn’t be an afterthought. It should be a well thought out investment; planning not only how many dollars to spend but where.

First, let’s consider what is all involved when we talk about marketing costs. It isn’t just advertising; there is a lot more involved.

• Are you having items printed, like postcards or banners?
• Are you buying promotional items to give away, like pens or notepads?
• Do you utilize email marketing?
• Are you paying affiliates to market your products?
• Do you have a graphic designer that you contract with?

All of these items are going toward your marketing budget and shouldn’t be overlooked.

Keep in mind, your marketing budget, like your marketing plan, should not be set in stone. It should be a constantly evolving process. As your needs change, so can your budget. As you research new methods, see what’s working, and what isn’t, you can alter your budget to stay within your overall business budget. If you’re making more, you can spend more if you feel like it. However, sometimes you also have to cut back.

We’ve all heard the adage that you have to ‘spend money to make money.’ So, what are some basic parameters that you can set for yourself when determining how much you should actually spend? It’s a delicate balance, especially for new business owners.

Here are some tips that I’ve found helpful.

1. Think of your marketing budget as an investment.

Ideally, the money you invest here should be paid back to you and bring even more income with it. If you’re new to the game and not basing your spending on previous years’ sales, then also consider it a loan to yourself and to the success of your business. A marketing budget should always be included when estimating startup costs and initial investment.

As with all investments, there isn’t a 100 percent guarantee of return. So, invest wisely. Research the methods you plan to use. Compare results others have had if you’re able. If your investment isn’t doing particularly well, change it up; try a different medium. Consistently monitor your efforts and arrange them strategically. Don’t just throw everything out there and wait to see what sticks. Try a few things at a time, stay on top of it, and see what seems to be advantageous for you.

2. You don’t have to spend a fortune.

Don’t assume that you have to sink a ton of money into your budget for it to be successful. There are a lot of low-cost marketing options that you can, and should, explore. With the continuous growth of the internet and social media, don’t overlook these options. Make sure that you spend money on an attractive, well-functioning website. Often this will be the first line of contact with your customers, and you want to make a good impression. If you’re local, there should be a lot of small, affordable advertising options in your area. Also, be sure to take advantage of press releases and other media relations efforts that can help grow your business with little or no cost.

By planning, you can help avoid unexpected costs. If you set a certain dollar amount per month, you’ll be less likely to be swayed to purchase specials or additional promotions that are outside of the parameters you set. You’ll be continuously approached with new advertising opportunities and places to spend your money. But, you can’t do everything and having a budget set ahead of time will hopefully keep you in the black.

3. How much did you make last year?

Consider what your sales was last year. Or, if you’re just starting out, consider what you plan for it to be this year. Basing your budget on a percentage of the previous year’s sales is a popular way to determine your baseline. According to the Small Business Association, small businesses (with revenue of less than $5 million) should plan to spend seven to eight percent of their revenue on marketing. Keep in mind, there should be a plan behind this spending. I recommend continuing with proven methods that are working well for you. But, at the same time, sprinkle in some variety and try new things. You never know when a medium that’s been very effective for you in the past will drop off for whatever reason.

4. Remain flexible.

As trends and mediums change, so should you. As your revenue grows, or possibly shrinks, you may need to adjust your numbers. Always pay attention to what your marketing is or isn’t generating. Responsible business owners are good stewards of their money, spending where it’s most needed and most beneficial to their bottom line.

Conclusion.

By consistently monitoring your ROI (return on investment), you can be a better steward of your money. If you’re placing online ads, watch how many clicks are coming through. When you receive new orders, ask where they found you. Things like this can help you determine where best to spend your money and when it might be a good idea to change things around.

What tips do you have? What works well for you? In addition to the four tips above, I highly recommend an accounting software, or at the very least a spreadsheet to track all of your incoming and outgoing funds. Keep track of your weekly and monthly expenses and income, and it will be a lot easier when tax time rolls around.

Originally published February 10, 2015. Content updated December 5, 2018.