Marketing is an essential part of growing your business and sustaining a healthy sales pipeline. It can be easy to over and underspend on marketing, so deciding on the right budget is essential. 

So, how do you plan your marketing budget and determine your marketing ROI?

Marketing is a revenue generator

We need to think about marketing in a new way. Instead of viewing your marketing as a money pit that you throw money into every month, think of it as an investment account. Marketing is a monthly investment that’s designed to produce long-term results. 

You can use your marketing budget to build a library of content, a list of email subscribers, returning customers, and social media followers. All of these are marketing assets that generate and grow your revenue.

How to determine your marketing ROI

Sometimes it’s easy to dump money into your marketing efforts, but it’s much more efficient when you know what results to expect. If you’re not measuring your return on investment, there’s no way to tell if your investment is good or bad. 

If it’s costing you $500 to acquire a customer, and they’re only spending $250, that’s a bad investment. That’s obvious to everyone, but when you’re dealing with more numbers and moving parts, it can be challenging to nail down your real ROI. You might need to peel back some layers and identify how much it’s costing you to acquire new customers, and how much they’re spending.

Email marketing has one of the best returns on investment. Email Monday found that the average ROI for email marketing is 38 to 1. That means for every dollar spent on email marketing, businesses generated $38. 

How do you determine your cost per lead? Knowing your cost per lead helps determine your marketing budget and set realistic expectations. A lead isn’t a paying customer yet, but they’re aware and interested in your business. Even though they haven’t increased your bottom line, leads are valuable. Leads can be people following you on social media, joining your email list, or scheduling a consultation with you. 

Your first step is to identify where your new leads are coming from. Advertising and content marketing are two of the best ways to generate new leads, and they’re easy to track. If you spend $100 on Facebook ads and get 100 new email sign-ups, your cost per lead is $1, even if those leads don’t make a purchase.

What is the average cost of acquisition? Your cost of acquisition is how much it costs to get a paying customer. Usually, your paying customers are a percentage of your leads. So, you’ll need to figure out what percentage of your leads are following through with a purchase. 

This percentage will be an average that develops over time and not an exact number. Maybe 10% of your email list signs up for a consultation call, and then 50% of the calls turn into sales. Now you know that 1 out of 20 email list sign-ups are paying customers. Some months it will be 1 out of 30, while other months will be 1 out of 5. 

When you’re running online ads, your ROI is fairly simple and straightforward. But determining your exact ROI for organic social media content, blog content, and SEO can be more of a challenge. You can use a UTM tracking code to track which blog post or social media campaign your new customers are coming from. 

What is your average customer lifetime value? Are your customers making a one-time purchase or subscribing for a few months? Will they be back in a few months to make a follow-up purchase? 

The lifetime value of your customers will depend on your customer’s needs and your offers. Ideally, your customers will come back again and again, because returning customers are much less expensive than first-time acquisition. 

When you know your average cost per lead, it becomes easier to calculate your marketing budget and set expectations. 

How much should you invest in marketing?

Many factors will influence your marketing budget. We’ll focus on three important aspects: your industry, annual revenue, and growth goals. 

Every industry is different. You have different customers, cost of goods, scalability, and average customer value. Companies that offer digital products or SaaS can scale faster than a consulting or construction company. 

Typically, a marketing budget will range from 6–12% of the company’s annual revenue. You will need to know your current revenue and your longer term goals. Do you want to double your growth over the next 12 months? Or grow 10% in the next year? Keep in mind that growth comes with more costs all around. If you grow too fast without having the proper systems and people in place, it won’t be sustainable. 

To help you determine your ideal spending, we’ve created a marketing budget calculator. This calculator will ask you three simple questions about your revenue, industry, and growth goals and give you a recommended marketing budget. 

Is working with a growth agency worth it?

Now that you’ve figured out your marketing needs and worked out a budget, it’s time to start executing. You’ll need to decide whether you have the internal resources to carry out your marketing plan or if a marketing agency is the right fit for you.

There are pros and cons of working with a marketing agency, and it’s an excellent choice for some, but not for others. 

Benefits of working with an agency

Cost-effective: Working with a marketing agency is cost-effective for several reasons. Firstly, the agency knows what they’re doing, and you won’t need to spend time training them. Also, because the agency isn’t working in your office, you don’t need to spend money on their supplies, subscriptions, or resources. Lastly, a marketing agency will provide you with everything you need at a lower cost than hiring a full-time marketing director or team.

Marketing expertise: Marketing agencies provide services to a variety of companies. They’ve likely worked with other companies in your industry and are already familiar with your needs. 

New perspective: Every business can benefit from getting a fresh perspective on their marketing efforts. A marketing agency will bring a unique perspective from everyone on their team and implement ideas you’ve never thought of.

Downsides of a marketing agency

Lack of personal touch: Like everything in life, there’s always a downside. One downside to an agency is the lack of personal touch. The agency will provide a great service, but they usually aren’t as invested in your company as your employee might be.

Communication: You won’t have the convenience of walking down the hall to chat. A good agency will offer great communication, but it won’t be as convenient as having an in-house marketing person.

Higher minimum costs: nearly every marketing agency has a minimum monthly commitment. If you have a minimal budget, working with an agency might be out of your reach. Working with freelancers or hiring someone part-time might be your best option until your revenue increases.

For most businesses working with an agency can save them time and money. It’s not the best choice for everyone, but the benefits outweigh the costs. If you want to learn more about working with an agency, schedule a free consultation.