How to budget for effective marketing

 In Blog Post, Budgeting, Hank Yuloff

When we begin to work with a small business owner, building their sales as their business coaches, the first question we ask them is “What do you want your life to look like?” One of the main reasons you have opened your own business is to create the freedom to run your life the way you want to run it, right? One of our clients said it this way: “Yes, you now have the freedom to work 60+ hours a week.” But at least it is for yourself and your family.

Your Marketing Path

After we have an idea of what their Yellow Brick Road to Oz looks like (and that is not always a quick study), we begin the process of building that road. We call it a Marketing Path, because (to carry the analogy a bit further) as Dorothy went to Oz, she had to take a couple of detours, as will you.

To add another analogy, when we take off in a jet, on our way to a wonderful destination, the aircraft does not go in a straight line. It is blown off course by weather. It is sent in other directions based on traffic. It is even sent on different routes, based on the time of day it is traveling.

To get there, the first thing most of them want to work on, their first question, is “what marketing tactics are we going to use to get to the goals we have just set?” You want where we are sending the jet. But before we get there, we have to find out how much fuel is onboard. We need to know the marketing budget we are working with together to get you to the destination.

The Marketing Budget

If that gives you pause, if the concept of a Marketing Budget is a bit foreign to you, don’t feel bad. In fact, most small businesses owners, like you, generally set a seat-of-the-pants budget. That means that when they have a great idea for a marketing tactic, they have to look at the checking account to see how great it is. That is instead of allowing the great tactic to speak for itself.

Yes, it’s true that many small business owners like you are so busy budgeting their time to make sales, and the concept of creating a marketing budget is daunting.

I think that part of this is because most of us (including us when we began our business life), were not numbers experts. We still aren’t experts. BUT we HAVE learned and become experts with the numbers that are important to our businesses and to our client’s businesses.

Sitting on a lot of non-profit boards has had us looking at several different balance sheets on a monthly basis, in addition to our own, so that we can quickly pick up on ‘challenges’ in the business. Remember that your numbers are your friends and everything will turn out better for you and your business.

Most business courses teach us that in our overall business budget there must be a line item for ‘marketing.’

Unfortunately, over the years, we have witnessed two things happen: First, too many small business owners borrowed from that line item more than any other for other purposes. And second, some things that should be itemized as marketing gets miscatagorized elsewhere. That second factor makes it harder for us to track the success of our marketing programs.

For example, joining a chamber of commerce should be included in a marketing budget, but if it has a separate line item, the success or failure of our being a member of that organization could be missed.

Our Trade Show Booth. That is part of your budget, too

We budgeted $250 to build a new trade show booth.

An important factor in creating your budget, and what almost every private coaching client we work with struggled with before we began to work together is the amount to budget.

Noting that every business, even direct competitors, is different, here are some basic numbers to work with.

For an established business, the marketing budget should be 9-12% of expected revenue.

For a new business, or an established business with a new product or location, that line item should be increase to 15 – 20% of expected revenue.

As an example, when we launched our online marketing plan, The Small Business Marketing Plan, it was a new, different program. We budgeted 18% of the expected first year revenue to market it. That was about 9% higher than what we budget for our private coaching client business. And 7% higher than we budget for the promotional product part of our business. We also budget a certain amount for OTHER INTERESTING IDEAS. That is how we ended up with this very cool trade show booth.

“Everything you do when you are not doing what you do it marketing.”

We want to address something here. We have been known to use the slogan that “everything you do when you are not doing what you do it marketing.” While that is true in your activities, that is not true in your budgeting. In budgeting, legal fees, though not part of what you do, are not marketing. However, rent IS included in what you do, because you need a place to DO what you do.

So what DOES get included in your marketing budget? Here is the shorthand answer: include everything that you do to market your business in that marketing line item.

Let us give you several examples of what to include in your marketing budget, and a few not to include

Include memberships in organizations where you do networking. Also, we feel that memberships to organizations serving your industry are also marketing. When I was the president of the Specialty Advertising Association of California and served on that board for 6 years, relationships were forged which helped us run the promotional product portion of our business in a more profitable manner.

Don't include printing of forms used in your office in your marketing budget. However, brochures are definitely marketing. When you come on board as a private business coaching client, we give you an intake form which helps us track what you have done in your business and gets us all on the same page as to where we are beginning. Those forms are not marketing. However, the 12-page list of Client Services (send us an email at info@YuloffCreative.com and we will send it to you) is a marketing piece because it assists us in acquiring clients.

We include the cost of printing copies of our six marketing books as a marketing cost because quite often we give them away to potential clients and prospects. When we sell copies of those books, we add the dollars into a separate sales category so it offsets our marketing costs.

Your website, its design AND its maintenance are also part of the budgeting process. Please don’t forget that after you have your website up, it needs to be hosted and updated. Missing from the form we found is a cost for search engine optimization (SEO) in order to make it easier for Google and the other search engines find your website. If you want a very affordable program, connect with us.

Your basic marketing budget spreadsheet

To help you create your marketing budget, we found a budgeting spreadsheet. If you would like it emailed to you, please scroll to the bottom to complete the form so we can email it to you. It will give you a great beginning place to create your marketing budget. You will notice that even your business cards are part of this budget. We added several line items at the end to make it more complete.

Once you have created your budget, you have taken a huge step forward that most of your competitors will never take. That will set you far ahead of them.

So what is the next step? Great question!

You need to use your budget as a tool to help you decide what marketing tactics are working the best. There is no reason to continue using a tactic that is not bringing in the return on your investment that you decide with your business advisors.

As you can tell from this few years old graphic, Nike spends (INVESTS!) over $100 a minute on marketing. While they spend a lot on celebrity endorsements, your main line item will be different.

On a quarterly basis, we go through every marketing tactic that we deploy for our business.

We also recommend that our private coaching clients do the same, with our assistance. The most simple way to decide if it is effective is to use the Yuloff Creative Rule of Thirds. This is a basic beginning to determine profitability of a marketing tactic. There is the cost of the tactic. There is the cost of your overhead to employ the tactic. And there is the profit you should be realizing from the tactic. All of them are roughly equal thirds, though the goal for every tactic should be far greater.

How to grade your marketing tactics

We have another way to determine their efficacy as well. We give each tactic a letter grade, A-F. If a tactic is not at least a C+, we stop doing it. These grades are not just financially determined, but some of the grade is subjective. For example, we do a lot of work for non-profits. They are not very profitable tactics for generating revenue, but we enjoy it, so they usually receive a strong B. If a chamber of commerce slips to a C, we discontinue our membership.

In conclusion:

If you would like help putting your marketing budget together, or would like us to take a look at it once you have it created, connect with us at www.FreeMarketingConsultation.com where you'll be asked a few easy questions before being provided a link to our calendar so you can choose a time that works best for you. Let’s talk about you, your business, your challenges and the most direct ways to begin building your business.

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