How Do I Know if My Marketing Budget is Adequate for My Goals?

You know the importance of great marketing, but if you're a small business owner or startup founder, chances are the first question that comes to mind when you're thinking about marketing is... “How much is this all going to cost me?”

Kicking off a new marketing campaign requires everything from changes in mindset to building out significant content assets and getting access to new tech tools. So it makes sense that people would want to make sure the growth path they’re considering doesn’t involve spending on an irresponsible scale.

But how do you know if your marketing budget is adquate for your growth goals?  In this post, we'll discuss how to set a marketing budget that gets you the results you want... without putting you in the red. 

Marketing Budget Planning

While there are plenty of ways to minimize costs and spread the necessary spending over larger time frames, sometimes profitability can come faster by accelerating processes – which, in turn, accelerates spending. 

Numerous factors go into what your marketing budget should be, but before we dive into those details, let's explore the breakdown of where you may want to allocated different portions of your marketing budget. 

Related Read: The Average Cost of Website Design for Small Business (+ 5 Factors that Influence Price)

Let's dive into a detailed breakdown of where your marketing dollars should be going. If you're focusing on inbound and organic marketing, here are some suggested allocations for your budget. 

SEO and Website Optimization (15-25% of budget): Your website is your digital storefront, your best salesperson, and the first point of contact many customers have with your brand. You'll want to dedicate plenty of resources to optimizing the user experience, search engine visibility, and technical elements of your site. 

Marketing Automation and CRM (15-20% of budget): Work smarter, not harder with the right software solutions. An all-in-one solution like HubSpot can centralize email marketing, lead nurturing workflows, customer relationship management, sales, service, and more to simplify your processes. A top-tier solution may seem pricey, but it's worth the cost, trust us. 

Paid Advertising (10-20% of budget): We tend to focus on inbound and organic here at Lean Labs, but we know that sometimes you need to pay to play. Paid ads can be a good play to smoke-test new offers, drive traffic to a new page, or claim top search results for the most important keywords for your brand. 

Social Media Marketing (5-15% of budget): If you're in B2B, you might think you're excused from social media engagement, but that simply isn't true. Your brand needs to target platforms like LinkedIn and YouTube to position yourself as a thought leader, explore valuable co-marketing opportunities, and reach your target buyers where they are when they're considering solutions like yours.

Analytics and Reporting (5-10% of budget): Knowledge is power, and without data your decisions are just guesses. You need to invest in analytics tools and dashboards, regular performance reporting, and data analysis processes to study your current and past strategies and set your future ones up for success. 

Remember, these percentages aren't set in stone. They're more like guidelines that you can adjust based on your unique business needs and how mature your marketing efforts are. The key is to stay flexible and watch what's working best for you.

Consider the most significant factors that will go into your marketing plan, and you will be able to determine if you budget matches your goals. Let's take a look at some of the ways you can determine the best dollar amount for your marketing budget.

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Marketing Budget Calculation Methods

When it comes to determining the right budget for your marketing efforts, there's no one-size-fits-all approach. However, there are several tried-and-true methods that can help guide your decision-making process. Let's explore three popular approaches:

1. Percentage of Revenue Method: This straightforward approach involves allocating a fixed percentage of your total revenue or overall marketing budget to inbound marketing. For B2B companies, this typically ranges from 2% to 5% of revenue. B2C companies often allocate a bit more, usually between 5% to 10%.
   Example: Let's say your annual revenue is $5 million and you decide to allocate 3% to inbound marketing. Your budget would be $150,000.
2. Industry Benchmark Method: This method involves researching the average marketing spend in your industry and aligning your budget accordingly. It's a great way to ensure you're staying competitive within your sector.
   Example: Industry reports might show that companies in your sector spend an average of 8% of revenue on marketing, with 40% of that dedicated to inbound strategies. You can use these figures as a starting point for your own budget calculations.
3. Goal-Driven Method: This approach bases your budget on specific marketing goals and the resources required to achieve them. While it requires more upfront work, it often results in a more accurate and tailored budget.
   Example: If your goal is to generate 500 qualified leads per month through inbound marketing, you'd calculate the costs of content creation, SEO, paid advertising, and other necessary activities to reach this goal.

At Lean Labs, we take a slightly different tack. We like to create what we call a self-funded growth loop. What does that mean? We start by targeting your warm market, then use the revenue boost from those efforts to fund the next (and more challenging) step, cold market acquisition. This method allows for a balance between crushing your goals and maintaining a healthy bottom line while you do it. 

You also need to know where you're starting from. If you aren't sure of your starting line, check out our free resource, the Growth Grader, to assess your positioning and performance and set clear goals for your business and marketing. 

Key Questions to Determine Your Budget

What Are Your Goals?

It may sound trite, but to evaluate your budget, you first need to determine what your goals are. Be specific. Instead of asking, “Are we looking to increase traffic with new customers?,” for example, ask, “How much traffic do we need every month to create enough leads that we can depend on the conversions we need moving forward?”

How many leads do you need to capture each month in order to nurture sufficient sales-ready prospects? In order to meet your regular goals (quarterly, annually, etc.), what rate of growth is necessary on a month-by-month basis?

What Is Your Time Frame?

As you crystalize your goals, incorporate the “when” involved with them. By when do you need things done in order to maintain momentum with your objectives?

Are your needs immediate? Do you need results right now in order to move forward? When the answer to this question is “yes,” you are likely to spend more on advertising to complement incremental increases in organic traffic as the business increases and grows.

Do you have a year to invest in building your inbound marketing machine? Are you making enough money currently to keep you afloat while inbound starts to take hold? When the answer to these questions is “yes,” then you have the leeway to spread out your marketing efforts, both practically and strategically.

What Are Your Skills and Skill Gaps?

As you are probably discovering, inbound marketing work requires a lot more specialized expertise than some people like to think. You may already have people on your team with some of these skills, while others will need to be sourced. Similarly, ask yourself whether you’re best off onboarding more in-house talent, hiring an agency, or turning to the world of freelance service providers.

So when you broadcast your business going forward, consider whether you need a web developer, a graphic designer, a writer, a community manager, a conversion optimization practitioner or other such professionals who contribute critical experience and know-how.

What Are Your Tool Needs and Costs?

As you embark on your inbound marketing program, keep in mind that you need a marketing platform. HubSpot, which is the one that we and a lot of our clients use, is an excellent choice.

You will also want to create landing pages and thank you pages, important elements for lead capture via premium content offers. Those who opt to use a platform other than HubSpot will find tools like Unbounce and Leadpages useful.

Other tools that will prove themselves to be invaluable include:

• An email marketing automation system
• A website host
• A content management system
• Relevant software for graphic design, coding and more – as dictated by your company’s specific needs and marketing goals

Key Marketing Metrics To Track

You'll never know if your budgeting is on point if you aren't able to see where you're getting results and where you aren't. If you want to see how your budget is performing, it's crucial to track the right metrics. Here are some key metrics to monitor:

Traffic Metrics

1. Organic traffic growth: Measures the increase in visitors from search engines over time. Formula: (Current period organic traffic - Previous period organic traffic) / Previous period organic traffic x 100
2. Referral traffic: Number of visitors who came to your site from links on other websites. Formula: Sum of all visitors from external links
3. Direct traffic: Visitors who typed your URL directly into their browser or used a bookmark. Formula: Sum of all visitors who didn't come from a tracked source
4. Bounce rate: Percentage of visitors who leave your site after viewing only one page. Formula: (Single-page sessions / Total sessions) x 100

Lead Generation Metrics

1. Conversion rate: Percentage of visitors who complete a desired action (e.g., form fill, download). Formula: (Number of conversions / Total visitors) x 100
2. Cost per lead: Average amount spent to acquire a single lead. Formula: Total marketing spend / Number of leads generated
3. Lead quality score: A numerical value assigned to leads based on their likelihood to convert. Formula: Varies, often based on demographic and behavioral data
4. Marketing qualified leads (MQLs): Leads deemed more likely to become customers based on lead intelligence. Formula: Number of leads that meet predefined MQL criteria

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Content Performance Metrics

1. Page views: Total number of times a page has been viewed. Formula: Sum of all page loads (including repeat views)
2. Time on page: Average amount of time visitors spend on a particular page. Formula: Total time spent on page / Number of page views
3. Social shares: Number of times your content has been shared on social media platforms. Formula: Sum of shares across all tracked social platforms
4. Inbound links: Number of external websites linking to your content. Formula: Sum of unique domains linking to your site

SEO Metrics

1. Keyword rankings: Your website's position in search engine results for specific keywords. Formula: N/A (typically tracked as a numerical position)
2. Domain authority: A score predicting how well a website will rank on search engines. Formula: Proprietary to tools like Moz (scale of 1-100)
3. Backlink profile growth: Increase in the number of quality backlinks to your site over time. Formula: (Current number of backlinks - Previous number of backlinks) / Previous number of backlinks x 100

Email Marketing Metrics

1. Open rate: Percentage of recipients who opened your email. Formula: (Number of opens / Number of emails delivered) x 100
2. Click-through rate (CTR): Percentage of recipients who clicked on a link in your email. Formula: (Number of clicks / Number of emails delivered) x 100
3. Unsubscribe rate: Percentage of recipients who unsubscribed after opening an email. Formula: (Number of unsubscribes / Number of emails delivered) x 100
4. Email list growth rate: Rate at which your email list is growing. Formula: (New subscribers - Unsubscribes) / Total subscribers x 100

Social Media Metrics

1. Engagement rate: Level of interaction your social media content receives relative to your follower count. Formula: (Likes + Comments + Shares) / Total followers x 100
2. Follower growth: Rate at which you're gaining new followers on social media platforms. Formula: (New followers - Lost followers) / Total followers x 100
3. Social media referral traffic: Number of visitors to your website from social media platforms. Formula: Sum of all visitors from social media sources

ROI Metrics

1. Customer Acquisition Cost (CAC): Average cost to acquire a new customer. Formula: Total sales and marketing costs / Number of new customers acquired
2. Customer Lifetime Value (CLV): Predicted net profit from the entire future relationship with a customer. Formula: (Average purchase value x Average purchase frequency x Average customer lifespan)
3. Marketing ROI: Return on investment for your marketing efforts. Formula: (Revenue generated from marketing - Marketing costs) / Marketing costs x 100

Making Your Marketing Budget Work For You

How will you know if your marketing budget is enough to meet your needs and reach your goals? Following the information in this guide is a good start. But you don't want to just set a budget - you want to plan marketing campaigns that deliver such incredible ROI that the next quarter's budget isn't even in question.

How can you accomplish this?

With the right playbook. Check out our free resource, the Growth Playbook, today to see how to plan, budget, and strategize for growth and take your business to the next level. 

If you’d like help envisioning how it all might play out for you, we’d be happy to talk.