Are You Understanding Your Marketing Budget?

From the very beginning of the modern marketing era, one constant factor in brand promotion and a marketer’s broader efforts to connect with consumers was the inability to accurately know, with any degree of certainty, the real impact marketing efforts had on a company’s success. Digital marketing’s ability to offer some expanded insights, based on performance data, has brought marketers a much-improved ability to determine the success or failure of digital promotional efforts. Even as total global advertising spend is projected to reach $793 billion by 2022, most marketing experts are still unable to fix the amount of marketing budgets that are being wasted.

Surveys reveal that marketers today estimate that they waste approximately 26% of budgets on unproductive strategies and ineffective channels. This high cost of waste is causing even the most modest of businesses to refocus efforts to better understand the marketing budgets. For every organization to fully grasp and understand marketing spend is to first establish a marketing budget. Failing to identify an affordable budget will result in waste. So, how much should be spent on marketing activities and how should the dollars be allocated across marketing channels? The simple and most accurate answer: It depends.

Marketing budgets are most often determined by the size of a company, its revenue, the industry segment, and how long the business has been in operation. Businesses operating for 1-5 years should expect to allocate 12-20% of revenue in order to establish a position in the market. Established brands that have been operating for more than 5 years generally spend between 6-12% of annual revenue. Budgeting money for advertising and promotional activities has often been seen as an investment that will generate a return (ROI) in increased revenue. However, it should also be noted that investments carry a certain level of risk. Whatever the budgeted amount, it should not exceed an amount an organization can afford to lose should the expected ROI not be realized.

The budget should be based on specific, attainable goals that are relevant to the businesses’ objectives and must be measurable. Set time limits for achieving goals and develop processes that keep efforts on track. Select the key performance indicators (KPIs) that will be tracked to effectively measure a budget’s performance. Focus allocations to marketing channels and activities that produce optimal results. Allocate the majority of the budget to strategies that are known to be most effective, with the balance set aside for initiating new strategies that will grow revenue and allow for experimentation. The budget should be flexible to permit ongoing adjustments to original assumptions and take advantage of changes in consumer behaviors and unforeseen social and geopolitical dynamics.

Despite the quality of marketing strategies and the size of the budget, even some of the largest companies are struggling to fully understand marketing budget efficacies. When some big brands recently stopped spending completely on digital advertising, nothing notable happened to sales or revenues. They neither went up or down. The results, however, are likely to be short-lived. Marketing spends ROI is understood to be a long-term play. Regardless of the industry, turning investment into return requires consistent adherence to a well-developed marketing strategy and a commitment of reasonable financial resources budgeted to achieve its realization.