What factors should you consider when preparing a marketing budget plan?

Do small business owners invest in marketing? Yes. 
Do they always prepare a marketing budget plan? Not always. 

A marketing budget plan entails a detailed breakdown of all marketing-related expenses. It serves as a roadmap that outlines the specific marketing goals and the costs involved in achieving those goals. As a digital marketing company with over 20 years of experience, we understand how difficult it can be for small businesses to establish a well-thought-out budget every quarter or year. But at the same time, functioning without a budget can undoubtedly prove to be a costly mistake. 

Making impulse decisions and relying solely on gut instincts for marketing decisions is just an accident waiting to happen. Preparing a marketing budget will compel you to analyze several factors and arrive at a solid marketing plan that brings tangible results. This article has shed light on ways to manage marketing budgets for small business owners through effective and actionable tips.


Should I invest in traditional or digital marketing?

Digital marketing drives quality traffic, generates hot leads, reduces customer acquisition costs, and maximizes revenue and profits. It is also more effective than traditional marketing at optimizing budget allocation as digital marketing campaigns are hyper-targeted.

If you are still unsure why digital marketing deserves the larger share of the budget, let us walk you through some key benefits of digital marketing that have forced traditional marketing to take a backseat over the years.

Reason #1:
Traditional Marketing is not a pocket-friendly option, especially for small businesses. On the other hand, digital marketing offers flexibility to set a budget for campaigns, ideal for businesses on a shoestring budget.

Reason #2:
Traditional marketing targets a broader audience but digital marketing targets only the most relevant audience.

Reason #3:
In traditional marketing, there is no way to test ads before launching them but in digital marketing, you can Real-time testing and optimization ads based on audience response.

Reason #4:
Traditional marketing campaign results (impact on the audience) are not measurable, but in digital marketing, you may accurately track and measure every aspect of campaigns such as Clicks, impressions, followers, bounce rates, and all key metrics.

Let’s look at some interesting statistics that serve as a testament to the claims mentioned above. 

  1. 59% of the global population are active internet users as of January 2021
  2. Spending on digital marketing has greatly outpaced traditional marketing
  3. Small and medium-sized businesses are the majority of the 8 million active advertisers on Facebook. 
  4. 28% of customers prefer messaging apps to resolve issues with a company and expect a response under 5 minutes on live chat. 
  5. 100% of the B2C companies included social media in their marketing budgets

Traditional marketing is no longer an effective weapon against stiff competition. Small businesses must divert their resources towards digital marketing to make the most of their budget and maximize profitability.


Marketing budget models

A business can utilize different marketing budget models to prepare an effective budget. A marketing budget model is decided after considering factors such as past expenditure patterns, current affordability, or competitors’ spending. The key is to achieve a healthy balance between revenue and expenses.

While you want to ensure that you don’t overspend, it is also necessary to scale and grow your business. Below are the two popular marketing budget models to help you kickstart your budgeting process.

1. Percentage of revenue
This is one of the easiest ways to prepare a budget as it relies heavily on the revenue earned. You can arrive at an ideal percentage of revenue that you can set aside for marketing. Small businesses are recommended to spend 7% to 10% of their revenues on marketing.

If yours is a young enterprise less than five years old, the spending can go up to 20%. Businesses older than five years can allocate 6 to 12% of revenue. Consulting a small business marketing agency can help you zero in on the ideal percentage of revenue to be allocated depending on the nature, size, and growth stage of your business. 

2. Fixed budget
If you follow the fixed budget model, you set the budget for the whole year well in advance. It is up to you to decide what amount you want to spend on marketing. Generally, the amount is decided based on affordability. You can analyze the previous year’s budget and accordingly increase or decrease for the current year. If you wish to have some flexibility, you can start by preparing the budget for the first two fiscal quarters rather than an entire year. 

While the above two budget models will guide you with the basics of budgeting, an ideal budget plan is goal-oriented, split between digital marketing and marketing automation, and guarantees a decent ROI at the end of the year. It outlines the total funds invested in each marketing tactic and is not based on assumptions but factual data and analytics.


Mapping the customer journey

How will you know which marketing areas require more attention and resources if you are completely unaware of your customer’s purchase journey? We all know that there are many ways a customer can contact your business. It could be your website showing up in search results, email, or social media advertisements. Brands today are fiercely competing to elevate the customer experience more than anything else.

According to the recent CMO survey, there has been a 71% increase in spending on customer experience over the last three years, from 8.9% of marketing budgets to 15.2% at present.

Customer mapping contributes to making a good budget plan because

  1. It helps you identify areas of friction in the customer journey
  2. It helps understand what drives customers to make a purchase 
  3. It can help determine which channel and type of content need to be worked upon


Goal setting – cost per lead v/s cost per sale

Cost per lead refers to the cost incurred to generate one lead. Cost per sale refers to the cost incurred on converting that leads to a customer. While preparing your annual budget plan, you may want to answer the following questions:

  • How many leads do I require to achieve a particular amount of revenue?
  • How much will that cost?
  • How to hit the ideal conversion rates?

To calculate your average cost per lead, divide the total amount spent on marketing by the number of leads generated. The average conversion rate can be obtained by dividing the number of conversions by leads. Cost per lead and conversion rates are key statistics in making a budget plan.


How much should you spend on customer acquisition?

First, set clear goals. Let’s say you want 100 new customers this year. Assuming that your average conversion rate is 10%, you will need to generate at least 1000 new leads to hit the goal of 100 new customers (new customer goal divided by average conversion rate). Multiply the number of new leads required with the average cost per lead, and you will get the total amount you need to spend to acquire 100 new customers. 

I.e. 1000 X $140 (average cost per lead) = $140,000

$140,000 is the amount you need to spend on marketing if you want 100 new customers. 
Your aim is to increase conversion rates while decreasing the cost per lead. A full-service Digital Marketing Agency in Orange County is probably the best choice to help prepare a budget that achieves the best results in both areas.


8 key marketing tactics that make for a successful marketing plan

With the larger share of marketing budgets shifting towards digital marketing, a few marketing tactics have proven to be a game-changer for small businesses. Here is a list to help you figure out the important tactics you need to split your budget. A small business digital marketing company can better assist you with the proper distribution across these eight key marketing channels discussed below.

1. Google Ads
These are paid ads displayed on search engines that charge per click. You can set a budget you wish, and the amount will be deducted from your Ad account only when a prospect clicks on the ad. 

2. Social Media Ad
Social media ads are run on popular social networking sites like Facebook, Instagram, LinkedIn, YouTube, etc. Depending on which platform is popular with your target audience, you need to divert your resources.

3. SEO
Search Engine Optimization is optimizing web pages to rank higher on search engine result pages. It means your website shows up every time prospects input relevant queries into search engines. SEO helps you generate large volumes of easily convertible traffic.

4. Social Media Management
Social media management is about managing social media profiles, publishing content suited to your audience’s tastes, monitoring online conversations, and measuring the overall impact of all social media activities.

5. Reputation and Review management
Reputation and review management are about monitoring the online reviews, ratings, and feedback, responding to them, and combating negative comments with positive content. It is about shaping a positive perception of your brand.

6. Technology
Integrating chatbots and online booking buttons into the website is a smart move to stay ahead of the competition and offer a rewarding experience to today’s tech-savvy customers.

7. Email Marketing
Email marketing ROI can be as high as 4400%. You can deliver personalized messages tailored to appeal to customers at different stages in the buyer journey and maximize conversions.

8. Content Marketing
Content marketing refers to creating and distributing content in diverse media formats that offer value to customers and establish your position as a leader in your respective niche.


Testing costs

One of the greatest advantages of small business digital marketing is testing campaigns before rolling them out on a wide scale. However, most businesses fail to allocate funds for testing. Testing costs are not considered while preparing the budget due to a lack of knowledge or experience in the digital world. Split testing allows you to test different elements of the campaign (fonts, copy, call to action, images) and adjust your strategy to lower your CPC.

If you are experimenting with new strategies or platforms, make sure that you run tests long enough to derive concrete conclusions. Ten percent of the marketing budget is an ideal amount to be set aside for testing. Split testing different elements can seem daunting for business owners, so hiring experts from a marketing agency is a wise decision.


Hidden costs

What are hidden costs? It can sometimes be a cheap tactic bogus marketing companies use to deceive gullible clients. Hidden costs can pop up in different forms, and business owners are forced to pay them often as agencies merely interested in money minting will go to the extent of stalling existing campaigns if they don’t receive the payment. 

Hidden costs can also be an outcome of poor marketing processes. Underused marketing tools, missed deadlines, and non-compliance with marketing standards and regulations are all hidden costs that eat away your budget without even realizing it. Hidden costs arising from inefficient in-house marketing processes or tie-up with unethical agencies can be tackled by hiring a reputable marketing company that knows the ins and outs of marketing budgeting, planning, and execution.


Measuring ROI

In the end, everything boils down to ROI. The ROI figure reflects whether your marketing is helping or hurting your business. What is a good ROI? It depends on your industry, the tactics you used, and the channels you invested in. To calculate ROI, you need to identify the number of leads, the lead-to-customer ratio, average sales price, and the total marketing spend. 

Arriving at an accurate figure might be difficult since several costs are involved in the ROI calculation process. Measuring your returns will never be an issue if you have outsourced your marketing to a Digital Marketing Company in San Diego. An agency can help set realistic ROI goals and optimally utilize your budget.



Marketing budgeting applies to every business regardless of its size and nature. A budget plan ensures that you are not shooting arrows in the dark. Preparing a budget might be difficult for small business owners who have never been serious about marketing. 

Here is a quick recap of the important points discussed in this article:

  1. A major portion of your budget must be digital marketing as it is cost-effective and mostly employs ‘pull marketing’ tactics to draw qualified leads.
  2. There are different ways to develop a marketing budget of which the percentage of sales and the fixed budget method can help small business owners who are just getting started with their marketing. 
  3. Understand your target audience and create buyer personas to determine the pain points and know where to channel your funds.
  4. Keep your eyes on the cost per lead and acquisition cost and ensure you achieve your goals by staying within the budget. 
  5. Don’t forget to reserve some amount for testing and optimization of campaigns.
  6. Stay away from agencies that charge extra in the name of hidden costs. Improving the efficiency of your marketing processes also helps avoid hidden costs. 
  7. Track your marketing budget and gauge its success by calculating ROI.

Ready to prepare a marketing budget plan for your business? Let us know which budget model and marketing tactics you will be using in the comment section below. 

Marketing Revive

Marketing Revive is a full-service digital marketing company catering to small businesses by developing dynamic marketing plans and helping them allocate funds towards the most profitable channels. We can turn around small businesses with tried and tested marketing tactics from marketing budgeting to strategy implementation.  Have queries? Schedule a free 1-hour consultation, and we will be glad to help. Also, follow us on Instagram, Facebook, and LinkedIn to receive handy marketing tips.