Are You Struggling With The Right Marketing Budget Allocation?

Many businesses, whether large or small, often struggle with allocating the right amount to marketing. But how do you go about setting the marketing budget? Allocate too much, you probably won’t get the return on investment that you were hoping for. Allocate too little, you limit yourself from the possible opportunities.

Here are six of the most commonly used methods to determine your budget:

  1. Percentage of Revenue–This method assumes a direct correlation between revenue generation and marketing. Allocations will vary between 1-15% of revenue.
  2. Historical–An examination of previous year’s budget vs. accomplished marketing objectives.
  3. Goal/Campaign Oriented–Method used based on the projected costs of each marketing initiative planned for the year.
  4. Competition Oriented–Budgeting based on what your competitors are spending.
  5. Ad-hoc/Random–Management randomly assigns a budget number that they feel comfortable allocating for marketing.
  6. Hybrid–Combination of multiple methods.

Marketing budgets are a tricky proposition. Each of the above methods have their benefits and pitfalls–knowing each can help you allocate correctly. It’s important to set clear marketing objectives and have executives be on the same page when determining your annual marketing budget. Allocating the right amount can make the difference between success and failure. After all, products and services don’t sell themselves.

One last closing thought: Stop looking at marketing as a cost center and see it for what it really is, a profit center. The late management consultant Peter Drucker, who is credited with the philosophical and practical foundations of the modern business corporation, once said:

“The business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”