To grow your business, it’s essential to have a strategic marketing plan and a smart marketing budget.
It’s time to set your budget for the upcoming year. As you formulate your fiscal estimate, how much are you planning to spend on marketing? Is marketing even included in your budget?
Establishing a marketing budget is a critical part of developing a marketing plan for your manufacturing business. Knowing what you have to spend and tracking what you actually spent provides a ballpark of costs and a baseline for reporting purposes. Your marketing budget can include anything from promotional expenses like advertising and PR to staffing and office costs. Anything that's included in marketing should be included in your marketing budget and ultimately in your business spending plan.
To learn more about developing a marketing budget to meet growth goals, either read on or click below to listen to the podcast episode.
Developing a Marketing Budget
Our marketing agency is often asked: what should come first — the marketing budget or the marketing plan? Should we figure out what we need to do first then allocate money to those pieces? Or do we first figure out our overall budget then try to maximize the budget to reach our goals? This is a “chicken or egg” scenario. Honestly, you can start either way. We recommend a combination of both approaches. Regardless, it's important to make sure you have a marketing budget set up at the start of your fiscal year so that you can refer back to it when calculating ROI.
Some line items within your marketing budget may be harder to report on than others. For instance, if you’re planning to do a brand awareness campaign for your manufacturing business, it’s going to be more challenging to pinpoint overall ROI. For simplicity's sake, it’s best to look at total investment dollars to sales dollars. But there's lots of different ways you can do it. As far as measurable elements like closed sales, website traffic, and qualified leads, ROI calculations tend to be more straightforward.
A simple but effective calculation can be taking your overall sales growth from a business or product line, subtracting your marketing costs, and then dividing that by your marketing costs — that's going to be your ROI. Looking at your ROI side by side with your budget and goals will help determine growth and success. Keep in mind, this may vary from company to company, even within the same industry.
Is your manufacturing business in a growth mode — meaning are you looking for significant growth over the course of the year? Or is your company established and heading toward steady growth over time? Your answer to these questions will affect how much you need to invest in your marketing budget in order to hit your growth goals.
Another thing to consider when you're putting together your manufacturing marketing budget is your competition. Ask yourself these questions:
- How does your company fit into your overall manufacturing landscape?
- How aggressive has your competition been in its marketing and advertising?
- How much brand awareness do they have? How much do you have comparatively?
- How much are you trying to gain in the marketplace?
It’s beneficial to understand how your business compares to competitors and how aggressive you need to be to make a difference. Understanding these pieces will help you gauge what your marketing plan should include and how much money you’ll need to cover those expenses so that you can meet your goals.
Establishing Marketing Goals
Goals are another essential element to have in place when creating a budget. As you're spending money, you should know its purpose. For instance, if you're trying to hit a specific objective for the quarter or the year, you can assess how aggressive you will need to be with your budgeting and how many contacts you will need to deliver to your sales team in order to meet that objective.
Another way to look at it is: from a website traffic standpoint, how many visitors do you need to generate X amount of leads who will become X amount of closed deals? An established company may not need to be as aggressive with goals and budgeting as a new one.
What to Include in a Manufacturing Marketing Budget
Make a list of everything that you're going to need marketing for: trade shows, print collateral, promotional items, digital marketing, traditional marketing, website development, social media spend, software/tools, work hours, etc. Within the budget, consider whether these things will be done in-house with an internal marketing team or through an agency or vendor. All of these things need to go in the budget to have a realistic cost estimate.
Additionally, consider allocating some budget for experimentation. For instance, trying new technology or creating a trade show campaign could prove beneficial and profitable. It’s smart to have a little money set aside for these things. Having flexibility provides the opportunity for your company to find new (or better) ways to grow.
Here’s a systematic way to factor these elements into your budget planning.
- First, look at the hard costs and make a line item for each. These are the items that come up every year — the established and recurring costs like software, trade shows, media buys, design services, print services, etc.
- Second, add in items that you want to be included. Here’s where new line items are created. There’s no need to be hyper granular as there isn’t a predictable or hard-and-fast cost here yet. You just need to know the amount of money you’d like to have for these items.
- Next, prioritize based on value and ROI. Does one line item have more potential than another? If so, prioritize it in your budget. You can always reallocate money, but starting with a plan is the best way to approach it.
Generally speaking, it’s helpful to start from an annual perspective. Get your yearly budget done first, then break it down into quarters or months depending upon how you want to track costs.
It's ideal to monitor your actual spend versus your projected spend. This allows you to make adjustments, reallocate funds, or see where you’re over or under budget as you move through the year.
What a Marketing Budget Should Look Like
Let's get into the nitty-gritty by going over an example and looking at actual marketing budgets.
Generally speaking, it’s best to use a percentage of annual revenue or overall growth initiative. If you look this up online, you're going to get about a thousand different answers. Everybody has a different opinion about really what that percentage should be. In most cases, 8-10% of the business’s annual revenue is appropriate for a marketing budget. The Gartner CMO Spend Survey backs this up. They believe that a percentage range is best for budgeting, especially for B2B companies. Now, B2C companies generally spend a little bit more. They might spend closer to 15-20% on their overall marketing because their efforts are a bit different than B2B companies.
Keep in mind, if you're a growth-minded company hoping to move up and to the right, you may have to kick in a little more because you have more aggressive goals.
For the sake of understanding how this works, here’s an example using round numbers to make it easy to follow. This is not a guaranteed formula or promise of return.
Let's say you're a 10 million dollar company, and you want 3 million dollar growth. Using the 8-10% range mentioned above, an appropriate marketing budget might be somewhere between $800,000 and 1 million dollars.
To calculate ROI, let's say your company did hit that 3 million dollar growth goal using that $800,000. So, you take the 3 million dollars in growth, subtract your marketing investment — which is $800,000 — and then divide it again by $800,000, which is going to give you 2.75. Now to make that a percent, multiply it by 100. This will provide you with your overall ROI, which is 275%.
To be clear, this is an illustration, not a guaranteed formula or promise of return. However, if you know your company’s annual revenue, growth goal, and marketing budget, you should be able work through this process to get an idea of your potential ROI.
It's important to establish an appropriate marketing budget for your manufacturing company based on size and growth goals. Break it down into parts so that you know how much to allocate per marketing component, and be sure to monitor your budget and results year-round. If you’re looking to push past the competition, try experimenting with some new technologies to find out what works.
To learn more about establishing a marketing budget for your manufacturing business, listen to the podcast episode, Building Your Budget: Setting a Marketing Budget to Meet Your Growth Goals.
If you already know your budget but need help creating and executing a plan, we can help. We're happy to help you develop a strategy that will push your business closer to your growth goals. Starting the conversation is easy. Just click the button below to set up a time, and we'll be in touch. With your industry experience and our marketing expertise, we can move the needle up and to the right together.