5 tips to know you’re budgeting for marketing the right way.

In a world with more and more data, budgeting for marketing can’t be that hard, can it?

With the sea of data and huge number of channels, knowing where your marketing budget can be spent can be overwhelming.

However, if your business has been trading for more than 2 years, you will have enough data to understand where you should be spending your money.

Understanding

Budgeting for Marketing

What is it?

Historically budgeting for marketing was set at the beginning of the year, based on targets set by the leadership team.

Quite often the budgets were not reviewed frequently.

budgeting for marketing In our research we found 64% of leading businesses (Legends) evaluated their marketing performance against their forecast at least on a monthly basis. This compared to only 37% of trailing businesses (Oafers).

With digital, a lot of the data is available, which has allowed organisations to plan in different ways. One of these is Zero based budgeting.

Deloitte summarised the pros and cons of using zero based budgeting.

The challenge of Zero Based Budgeting is that it can be a complex timing consuming process, but the benefits are clear.

It enables organisations to improve their efficiency and spend by validating assumptions at every level. Furthermore it helps organisations create cost savings where it is needed based on past performance looking at specific campaigns or channels.

To succeed, organisations need to create detailed performance based budgeting, using the organisations financial goal

Why measure it?

Financial officers are frustrated at the lack of commercial competence in marketing. This was evidenced in a report from Marketing Week, which reported 83% of marketers were unable to quantify Return on Investment (ROI), but 49% of marketers insisted on being handed more control of the financials.

Econsultancy also found 60% of Marketers had pressure on them to prove Return on Investment. Although this has dropped from a high of 66%, there is still a majority of marketers finding they need to prove the value of their marketing

The more sophisticated organisations were able to forecast Return on Investment (ROI) at a granular level.

budgeting for marketingIn our research we found leading businesses (Legends) were more than five times more likely (50%) to forecasting ROI by channel and device. When you compare this to trailing businesses (Loafers), only 9% managed to measure ROI by channel and device.

We also foundbudgeting for marketing 50% of Legends had total responsibility for the marketing spend vs. only 27% of Loafers had complete ownership of the marketing budget.

To have a greater ownership of the marketing budget, marketers need a good grasp of detailed ROI measurement, using channel and device performance

How do I succeed?

Using a guideline, looking at budgeting for marketing as a percentage of revenue, is spot on. In the last CMO survey August 2019 the percentage increased to 9.8% from 7.3% from the previous year.

However only using this metric, doesn’t allow organisations to monitor and make the most from their budget.

An important factor is to continually measure your performance and adjust the budget. However, there is still a large gap between those that do forecasting and leave it vs those who revisit their forecast during their financial year.

budgeting for marketing Budgeting for marketing was revisited more than twice a year by 93% of Legends compared to 37% of Loafers. Even more telling was 27% of Loafers never adjusted their budget.

So does the extra planning required from Zero based budgeting, detailed ROI measurement and continual adjustment of budgets work?

budgeting for marketing We found 57% Legends had increased their revenue by more than 10%. Whereas 46% of Loafers digital revenue remained the same.

Continual monitoring and adjustment of the marketing budget is crucial to successful results

Our key findings from our guide to Marketing Budgeting and Forecasting

budgeting for marketing

90 Days to higher conversions using your data

Understand how to create your marketing budget

Never let your campaigns write cheques that your website can’t cash.

Avinash Kaushik  Digital Marketing Evangelist, Google

How good are you?

How to be a marketing forecasting and budgeting legend

During our research with London Research we profiled the behaviours of the top (Legends) and bottom (Loafers) performing businesses. Ok so loafers was a bit harsh but we’re just trying to spur you on to become a legend.
The table illustrates how each profile behaves and the key differences to successful budgeting for marketing.

budgeting for marketing

Just want the highlights?

See our How-to Video on Budgeting for Marketing

On the move?

Listen to our audio walkthrough of budgeting for marketing

Want to know how you measure up to others? Take our budgeting for marketing assessment and find out your maturity level.

Our 5 step plan to successful budgeting for marketing

Step 1 - Understand the Objectives

Start with defining what your organisation wants to achieve

This will have a big on how you set your budget. Creating a plan for growing revenue, is very different from one which aims to improve profit through reducing costs.

In this example: We are going to look at growing Revenue by £1m.

budgeting for marketing
1
Increasing revenue will focus on the growth of transactions, either those from existing customers or acquiring new customers. Alternatively it could come from higher average order values.
2
Reducing costs will look at optimising how much you pay to acquire customers and serve those customers. It will also look at reducing things such as returns, due to the cost of processing these and the lost sale.
3
Some traditional businesses find a minority of their revenue comes from digital. Digital potentially allows for a greater profit, especially if the brand is dealing direct with customers. The focus on a direct customer relationship and a smaller set of overheads can prove very effective for driving growth.
4
This is focus around growth within a given industry. Here the focus might be acquiring more customers to beat the competition, at the expense of profit in the short term. The aim should be to acquire customers to retain them in the longer term, rather than the immediate profit it will give you.

Step 2 - Get the data

Now you have your objective, map out the levers which will help your achieve your target. These will vary depending on your route or channel to market. 

In this example: We are going to look at the Ecommerce channel only to give us our £1m growth in revenue.

budgeting for marketing
1
This is the focus and the goal. This will be the objective want to try and achieve.
2
This is the channel or route to market we want to look at. In this example it is the Ecommerce website, which sells direct to customers. Rather than digital sales from wholesale partners.
3
Revenue is one aspect and the main focus for this objective.
4
There are number of ways in which revenue can be generated. The major 3 are listed here.
5
Although revenue generation is the main priority, keeping an eye on the costs (even if they cannot be reduced) is very important. Higher costs than revenue does not make good business practice.
6
Understanding the Cost per Acquisition and Cost per sale and ensuring both of them together, are not higher than the average order value is a sign of a profitable Ecommerce website.

Step 3 - Understand the gap

For the given channel/route(s) to market, we now need to understand what the gap is. To do this you will need to understand how many of your loyal customers will purchase and how many lapsed customers will come back. This will give you an outline of the new customers you need to acquire.

In this example: We will map the existing customers who have purchased from our Ecommerce website. We will also look at the revenue gap we are left with, once we take away existing customers contribution.

budgeting for marketing
1
Here is the revenue target we want to achieve. This is the total target rather than a subset. In this case it is applicable to the Ecommerce website.
2
The first group we want to look at is customers who are likely to purchase in the next 12 months. There might be different levels of confidence, but understanding this number from the existing active customers is important.
3
Next up is the reactivated of the inactive or previous customers. Given you have a relationship and their data, reactivating some of this audience should be cheaper and easier than brand new customers.
4
The gap of new customers and associated revenue which needs to be achieved. This helps focus the target and the acquisition of these new customers through acquisition marketing and media.

Step 4 - Build your funnel

Now you understand the gap and number of customers and sales required, it is time to create your funnel. In this example we will work backwards from the revenue to number of visitors, footfall or phone calls we need to get.

In this example: We will look at our Ecommerce funnel and identify the number of NEW website visitors we need to get to achieve our £1m revenue target. We will use the gap of £250k from step 3.

budgeting for marketing
1
Working backwards identify your revenue gap. From here divide this by your average order value to get total number of required transactions/orders.
2
Next up, understand the product view to purchase/order rate. This will allow you to understand how many visitors you need to get to a product page.
3
From here, look at the visitor to product page (PDP) view rate. Knowing this will allow you to understand how many visitors you need to attract.
4
This is your target number of visitors you need to get to your website. Remember this is only to reach the gap you have, which will be made up by new customers.

Step 5 - Define your activities and costs

For your channel/route(s) to market, rework your original funnel from Step 4 using the same targets, but create it as budgeting funnel.

This will allow you to understand the costs required to obtain your “new audience” identified as the gap in Step 3.

In this example: We look at the costs of acquiring the new audience on the website. We also look at the cost of processing this audience in terms of getting the order captured and fulfilled.

budgeting for marketing
1
Start with the number of visitors we needed to acquire to deliver against our number, from step 4.
2
This is the Cost per Acquisition and forms one part of the costs of getting a new customer.
3
The second cost, Cost of Sale, allow us to understanding how much it cost to process the fulfil the customers order.
4
If we add up the the Cost of Sale and the Cost per Acquisition we will have our total cost. Multiplying these to the total number of transactions or orders, will give us our total spend.
5
This is the cost of a customer arriving on a product page. It is useful for Google Shopping campaigns as a baseline as traffic is quite often directed to these pages and can cost more.
6
This is the cost of a visitor to the site not directly landing on a product page. It is a good guideline if you want that audience to purchase products and sets a cost per click (CPC) benchmark as an overall average. Some channels will be more expensive and some will be lower, so just use this as a guideline.

To summarise the 5 step plan

Once you have carried out the above 5 step plan for budgeting, you will need to carry this out for each channel where customers can buy your products or services.

This will help you build a full picture of your total customer activity, performance/contribution of that sales channel and what the required budget will be to deliver that sales number.

The output will be a forecast which you can then use to determine your required budget.

From here you can start to plan your media activity, proposition and promotions to deliver against the top line budget.

budgeting for marketing
1
Define a goal, this helps form the overall objective and the tactics which could be used to achieve that number.
2
Use your data first. There are benchmarks and industry data, but your data is the best source of the truth for your business, your customers and your performance.
3
Define the gap by looking at your existing customers and the number of new customers you will need to deliver the target number. This becomes your gap.
4
Create your funnel, by working backwards from your initial revenue target/gap from step 3. Using the data you have from step 2, work out how many visitors you need to visit.
5
With your target number of visitors, use your Cost per Acquisition and Cost of sale to work out your total required budget. Set your target Cost per browser and Cost per Visitors as a benchmark.

People also ask . . .

What is the difference between a forecast and budget?

We normally find marketing forecasting is used to predict what traffic, conversions and revenue the business might expect.

The marketing forecasting is used to then set the confirm how much traffic and therefore transactions are needed on the website to meet the target number of leads or revenue.

Once you have the target traffic you will be able to split this into organic (what comes naturally to your website) and what traffic you need to pay for.

The paid for traffic and the costs associated with it then form your budget.

How do I know if I have set my budget correctly?

There is no silver bullet for your marketing budget. You can only predict your budget based on information you have to hand.

You can only work with the data you already have.  Do not forget to use your data (your growth) and any industry benchmarks (market trends) to assess if the budget you have set is correct. You want to ensure you have the balance of your growth or decline against the backdrop of the overall market changes or trends.

Once you have set your budget the best thing to do is to monitor this closely and see how this tracks you performance year on year. If you outperform can you invest further? If you are underperforming do you need to reduce costs or reinvest elsewhere?

What do I need to measure to make sure my budget is accurate?

Budget accuracy is obviously key to all businesses, but measuring the right metrics is key to this being a success.

Using metrics such as pages viewed, time on site, total traffic or click through rate are helpful for diagnosing why things happened but will not help you build an accurate forecast and therefore a budget.

Try to use metrics which allow you to monitor the performance of your business such as revenue, conversion rate, cost per acquisition and average order value and cost per acquisition.

Break these metrics down by source of traffic (how people got to your website) and by device.

Once you have this in place you will be able to accurate measure your budget on an ongoing basis.

How can I make sure I am setting my budgeting for marketing correctly?

To help you understand the elements involved in creating your marketing budget we have created an assessment which is available here. This budgeting for marketing assessment will help guide you through what you current maturity is and what you need to do next.

It will give you bespoke, bitesize recommendations based on your answers, so you have a plan of what to do next and how to validate what you are already doing.

If you would like to learn more about the marketing budgeting assessment you can read about it here, and the 4 different maturity levels.

Recommended Reading

Below is some recommended marketing budgeting content, we have picked out. This content is mixture of resources to help you through to other articles which help understand more about marketing budgeting.

Download: Budgeting for Marketing research – Our research covers what the leading organisations do to forecast and set their budgets for marketing. Read how they accurately forecast and adjust their budgets to get ahead.
Define: Assess your marketing budgeting maturity – Understand more about the budgeting assessment tool we built, your maturity score and how this compares to your peers and get your own personalised plan to improve.
Discover: Resource for senior marketers – See our latest research or white papers to help you get ahead. Alternatively, read our digital marketing glossary for senior leaders to understand the jargon and acronyms of digital.

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