Researching and setting a marketing budget can be one of the most challenging parts of a marketing campaign. Your business can use dozens of different metrics to calculate your firm's next marketing budget.

And once you find that number, your work isn't done. You'll have to present your goal to management and get it approved.

Today we're here to talk about the process of justifying your marketing budgeting efforts to your boss. Once you have a few relevant points of reference, it'll be much easier for you to get everyone on board.

Marketing Budget as a Percentage of Revenue

The percentage of revenue method involves setting your marketing budget as a percentage of the anticipated revenue gained from the campaign.

According to Gardner, the average firm spends 10% of its budget on marketing efforts, but this number can be as low as 5% or as high as 15%.

This is a great baseline to start with when proposing a marketing campaign to management. You'll also want to consider external factors like your competition.

How Much is Your Competition Investing in Marketing?

Analyzing the competition's spending on marketing campaigns will give you a point of reference for your own. You can use other firms in your industry as a baseline for justifying your campaign costs. For instance, selling management on a $1 million marketing budget may seem more reasonable once you have found data revealing that the average firm in your industry spends twice as much on marketing.

Your competition can give you insight into how much you spend on marketing and where you spend it. Break down where their budget is going and where their audience is. See if your budget is missing any key areas. Maybe they keep making the same mistake that you now know to avoid.

Remember that the amount your competition spends on marketing doesn't indicate that you should be paying the same number. Most of the time, competition is not completely direct. You also may have different-sized companies with varying budgets, so you'll need to adjust your expectations.

The Role of Trends When Creating Marketing Budgets

The relevance of current and future marketing trends could also be ways to justify your marketing budget. Your audience's channels may be developing, and your marketing budget needs to increase in those areas accordingly.

For instance, your business may be looking to convert social media use to website visits. Your firm currently uses Instagram, Facebook, and Twitter to post videos.

Meanwhile, the video-sharing platform Tiktok recently grew to 1 billion monthly users. The rapid growth rate and a high number of users make it the perfect place to reach a new audience.

But is it worth it for your business to spend time and resources to target this new platform? You'll have to find KPIs that show expanding into TikTok would generate long-term returns.

Are Your Marketing Goals Aligned with the Goals of the Company?

Even if your research is accurate and your KPIs indicate a positive ROI, your company will not justify your marketing budget if it doesn't align with its values.

Let's say you find KPIs that will justify increased investment in a new social media campaign. If the CEO cares about boosting brand awareness on social media, finding followers and engagement KPIs will be helpful metrics.

But if you're bringing social media KPIs to the table when the business cares more about traffic to the website, there will be a misalignment.

Marketing KPIs to Measure Success

You'll want to make sure that any KPIs that you find align with the direction your company is trying to go. Here are some of the KPIs that you might use to justify those investments.

Revenue/Sales Growth

Most marketers use revenue or sales calculated growth to measure KPIs. You can find these by looking at data such as new purchases, repeated purchases, or continuation of services. These will act as predictions for a new marketing campaign.

Customer Retention Rate

Customer retention rate is the amount that a company spends to keep a customer. Usually, this can be measured with repeated purchases or a continuation of services. Customer retention rate will prove to be the most helpful when analyzing spending in existing channels.

Customer Acquisition Cost

Meanwhile, customer acquisition costs will be helpful when you're considering investing in a new marketing channel. Before you move into a new medium, you'll want to find the costs of acquiring new customers here.

If you notice that your current marketing efforts focus on an oversaturated market, you could compare customer retention rate and customer acquisition cost. With a lower CAC, you'll have a justification for switching channels.

Lifetime Value Approach

You can use the order approach to calculate the value of a client in the long term, also known as the lifetime value. This method is related to the retention rate but goes a step beyond the cost of retaining a client. The order approach measures if the client is increasing your company's revenue with spending over time.

And in the case of lifetime value, you may want to look at marketing efforts where the goal is to up-sell, cross-sell, or a combination of both. In these cases, lifetime value will increase for sure.

Marketing Budgeting Made Easy

These are just a few of the ways you can measure KPIs or ROIs to justify your marketing budget. Remember, if you are struggling to reference your budget in a way that management will understand, try to connect it to the percentage of revenue, the industry, the competition, and your business's goals.

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