How To Determine Your Marketing Budget?

Here’s the thing about marketing budgets that nobody tells you: there’s no magic number. No universal formula. No secret industry standard that applies to every business in every situation. Anyone who tells you “just spend 10% of revenue” is selling you a simplified answer to a complicated question. And anyone who says “start small and see what works” isn’t wrong, but they’re also not telling you how to know when “small” is actually “too small to work at all.”

The reality is that determining your marketing budget is less about finding the “right” number and more about aligning your spending with your ambitions. What are you actually trying to achieve? Are you launching something new? Are you in growth mode? Are you just trying to maintain while everything else is chaos? Because a maintenance budget and a launch budget look very, very different.

And here’s the uncomfortable truth that most people don’t want to hear: marketing is an investment, not an expense. I know, I know, it sounds like something a salesperson would say right before trying to upsell you. But stick with me. When you view marketing as a cost to minimise rather than an engine to fuel, you end up spending just enough to be disappointed, then cutting it entirely because “it doesn’t work.” But it didn’t work because you never gave it enough fuel to actually run properly.

The businesses that get it right aren’t the ones with the biggest budgets. They’re the ones who understand that consistency matters more than bursts, that testing requires enough runway to actually learn something, and that panic-cutting marketing in tough times is usually exactly the wrong move—even though it feels right.

Knowing how much to set aside for marketing usually seems like a daunting and tricky task. This is mainly because most of us don’t know what to consider and where to start. Determining your marketing budget involves several factors, including your business goals, the size of your business, the industry you’re in, and the type of marketing you want to do.

There is no one size fits all when it comes to budgeting but there are certain proven methods that can help you determine your marketing budget accurately.

Know your figures

Let’s start with the numbers. You have to first understand your business’s figures and know what they mean for you.

Let’s start with a list of figures you’d want to know before making a decision for your marketing budget:

• Profit margin: Understand how much you make for every sale and use this to calculate your net income.
• Cost per enquiry: Find out how much you spend in order to get 1 enquiry or sale
• Cost per sale/service: How much you need to spend to sell a service or product.
• Conversion rate: The percentage of visitors that complete a valuable action/convert compared to the total visitors

Below are the two metrics to evaluate when considering a digital marketing budget

Cost Of Advertising – For example, what would be the cost of Google Ads to get one click? For reference, an average cost per click (CPC) would give you a rough idea of the budget you need to acquire x number of customers. A higher CPC would indicate that advertisers need to spend more to get the same number of customers than if they have a lower CPC.

Customer Acquisition Cost (CPA) – What is the cost of each acquisition to you that earns you a return on investment (ROI)? Depending on your average revenue per customer, you can evaluate whether your CPA for each channel is leading you to a point of profitability. Based on this, you will need to adjust your budgets accordingly.

Determine Your Business Goals

Before you begin formulating a digital marketing budget, you must set up appropriate goals for your business.

To set appropriate goals, they must be SMART – SPECIFIC, MEASURABLE, ACHIEVABLE, RELEVANT, and TIME-BOUND.

You may have a specific goal in one of these three categories:

– Increasing awareness of your brand through metrics like brand name-search, ad impressions, and social engagement.

– Generating leads in the form of signing up for trial subscriptions, opting into email newsletters, downloading educational materials, etc.

– Sales metrics like total revenue, average revenue per customer, and cost per acquisition for a customer.

Determining your goals is critical to your digital marketing strategy. Without the goals, it will be difficult to measure success and also determine what channels would help achieve the business objectives.

Percentage of revenue or fixed budget?

Once you know your figures, it should be easier to be able to decide which method you want to use to calculate your marketing budget. Choosing the right one will be vital for your business so think carefully and don’t base your decision on your gut feeling only but take the figures we’ve just talked about into account.

Let’s talk about the two widely used methods.

1. Percentage of Revenue

In general, most businesses allocate about 7-12 % of their total revenue to marketing. Do you know why this is a great method? Because it’s a fact that you need to spend money to make money, especially as more and more businesses are now realising the importance of marketing.

By not setting a fixed budget, you will make sure you don’t miss out on any opportunities, for example, if there was a channel that was generating lots of sales for your business, putting a stop to it because you don’t have any more budget to allocate would not be the smartest choice for your business.

The other side of this is that if you’re not hitting your revenue targets for the year, setting a percentage aside for marketing ensures you don’t commit to something you can’t afford.

It’s all down to the ROI (return on investment), actually. If there is a channel that covers all its costs and gives you a positive return, you’ll want to keep investing in that channel. However, this is where your figures really come into play. You need to make sure it’s feasible with all your costs and profit margins.

2. Fixed Budget

The alternative method to using a percentage of your total revenue for marketing is determining a fixed amount as your budget. This method is mainly used by newer businesses, as they won’t have historical data on their total revenue, so they need to set a certain amount aside for marketing activities.

This is when you’ll need a solid marketing plan, as you’ll first need to decide what you want out of your marketing activities in the first instance. Rather than splitting your small budget between various channels and spreading yourself too thin, you are better off choosing one SMART goal for yourself and focusing on that when you’re creating a new business.

The only issue with this method is that there is no percentage and no way of calculating it, so no one can tell you how much you should be spending. The best way to determine your fixed budget is to do research. Talk to other business owners, similar in size and ask about their budget and see if that’s a feasible figure for you. Don’t try to compare yourself to huge brands that sell similar products/services, make sure you find a brand your own size to be able to compare figures.

Determine Your Digital Marketing Strategy

When you set your marketing strategy based on your business goals, you are better able to gauge your success. Each goal may call for a different strategy. The tactics will vary, but the channels will revolve around paid search, organic search, content marketing, social media, email, video, and mobile apps.

Even if something has worked well for you in the past, it does not mean it will continue to do so. The world was dealt an important lesson from the recent pandemic about the need to be agile and flexible with our marketing budgets. Brick and mortar businesses were forced to realize that digital channels can no longer be ignored.

Having analysed past industry trends and your company’s particular business goals can give you a starting point when it comes to analysing where to allocate your marketing efforts. However, while we look at what has happened in the past, it is important to also have a vision for the future.

Your digital marketing strategy should focus on the following

• What has worked well in the past
• What should be your current focus
• Upcoming trends and innovations

Based on your business goals, what has worked for you in the past, your revenue and cost metrics and taking into consideration where the industry is headed and what are your competitor spends and what is your outlook, you are in a fairly good place to start determining your digital marketing budgets.

Decide which marketing channel gets the investment

Determining your marketing budget doesn’t just end with deciding how much you’re going to spend on your marketing efforts, you need to also think about which marketing channels you need to invest in.

One big mistake businesses make in common is thinking they need to make use of every marketing channel available. This is not correct, you should always be asking yourself ‘how will this channel make a difference for my business?’ Spend money where you can actually see a return on investment and always measure the impact of your marketing activities.

When you’re considering which marketing channel to invest in, especially for a new business, start by thinking about the customer journey and focus on the different phases like awareness and consideration one by one.

Figures  > Method > Channel – Use this model to determine your marketing budget to avoid making the mistake of either spending the money you don’t have on your marketing efforts or not maximising the opportunities you have.

Measure and Optimise

At the end of the day, your advertising budget comes down to what you can afford. What we are recommending may not be doable, depending on where your business is in its life cycle. Accept the reality of your budget and have reasonable expectations for your marketing budget. It can be revised. Depending on the outcomes, you can adjust how much money you allocate to different channels, or you can change your overall budget. This would be possible only if you’re keeping track of the results. It is critical to test things, but equally important to measure those things too. Without knowing the results, your strategies have no real meaning. As you keep a close eye on performance, it may be necessary to reassign money from one area to another, so make sure to revisit your budget often.