How to Set a Marketing Budget that Doesn’t Erode Cash Flow

Author: Caron Beesley | November 21, 2016

Your marketing budget is more important than you think. When sales aren’t where they should be or cash flow is tight, one of the first business functions to get the can is marketing. However, if you want to grow your business, you have to put revenue back into your marketing. It’s an iterative process—you don’t just market your business and products for a few months then stop. You have to work at it.

How much money should you put towards your marketing budget? Here are some tips for setting a marketing budget that makes the best use of your cash situation while maximizing ROI.

Settle on a Marketing Budget That Works for You—Not Somebody Else

Instead of just coming up with an idea and then finding the money to fund it (a surefire way to create cash flow problems), spend some time assessing the factors that might influence a budget that works for your business:

  1. Consider the industry you operate in.

    What percentage of revenue do other businesses like yours allocate to marketing? Use this as a benchmark and work out from there.

  2. Analyze the competitive landscape.

    What are they spending annually on marketing vs. their market share? This is an important benchmark to consider alongside your industry’s average marketing spend. For instance, if the industry standard marketing budget for businesses likes yours is 10% of revenues but your two top competitors have 80% of market share, then you’re not going to get far with that 10% against such fierce competition.

  3. What about the size of your business?

    Smaller businesses with less overheads, like solopreneurs, can often allocate a larger percentage to marketing—up to 20%.

  4. What is the growth stage of your business?

    Startup or established? How does this impact your marketing plans and budgetary needs?

  5. What are your goals for marketing this year?

    Are you looking to establish your brand, launch a new product, grow your content strategy, improve SEO, or all of these? Prioritize your spend accordingly.

  6. What about customer referrals?

    Are they a big source of revenue for you? Referrals are a form of marketing too, so be sure to factor that into your costs.

Find Out Where Your Marketing Dollars Are Already Working

One of the simplest and most overlooked ways of finding out the best ways to set and spend your marketing dollars is to find out where your existing business is originating from. What is the lead source? Is it referrals, email marketing, SEO, advertising, etc.? Where are you seeing the best ROI? There are a number of ways to do this:

  • Compulsively ask customers how they heard about you, and tag them with that lead source in your CRM, marketing automation platform, or even your accounting software.
  • Use tracking URLs for your web and email campaigns so that each click on your website can be attributed to a lead source.
  • Create gated pages on your site so that people have to fill in a form before downloading a white paper, case study, etc. Track those leads through the sales funnel and compare them with other lead sources.

At the end of the day, knowing whether your spending is actually helping you achieve your marketing goals is more important than sticking to your budget.

Regularly Set Aside a Pool of Money

A useful option for calculating and preserving your marketing funds without getting into the red is to set aside a percentage of your overall business budget each month based on your growth goals and your cash flow forecast. Depending on how much you want to grow your business and your sense of available funds, allocate a portion to your marketing bank balance. If you want to grow your business by 5%, set aside 5 cents on every dollar you earn and put it in your marketing pot. That way, the money is available when you need it and is also constantly replenished.

Balance Creative Costs with Campaign Costs

It’s all very well spending lots of cash creating a pretty website or awesome commercials, but don’t get caught up spending all your marketing dollars on creative. Align your budget with your marketing plan and be sure to apportion a good chunk of your marketing funds to campaign planning, execution, and follow-up—whether it’s hiring an independent contractor for help or subscribing to a marketing automation system or email marketing software—be sure to balance your costs to ensure best use of your funds and ROI.

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