Q4 is here, and that means it is time to start your marketing budget planning for 2020. While a variety of factors may play into the success or failure of your business, your ability to create a budget and stick to it could be the key to survival. According to the Small Business Administration, half of the small businesses fail within the first five years. Smart budgeting now can give your business a better chance of making it over the 5-year hurdle. Your budget can ultimately help you anticipate cash inflow and outflow, prepare for tax season, identify financing needs, explore the possibility of growth, and help gauge the overall performance of your business. One key element to your total budget is allocating funds for your 2020 marketing strategy. Take the time for marketing budget planning for a more successful year. Whether you’re eyeing plans of expansions or just hoping to stay steady, here are some marketing budget planning tips to keep in mind.
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Take a look at 2019
The first step in planning your marketing budget is to take a look back at the previous year. Audit your 2019 budget line by line to determine how closely it matched your business’ actual income and expenses. By auditing your past years’ budget and expenses, you will have a realistic starting point for your 2020 budget. If you’ve been operating over a year, dive into past budgets and analyze trends specific to your business. What are some of your fixed costs? What does your sales cycle look like? Let past information guide you in establishing budget numbers for 2020, giving you a more concrete and realistic grounding for creating your budget.
It is essential to calculate your business’ gross revenue. Gross revenue is the initial amount before any deductions, expenses, or withholdings. You can use this number to help you estimate your revenue for the upcoming year and prep your marketing budget. When it comes to prepping your marketing spend for the year, one key factor is the age of your business. A new company that doesn’t have customers yet or brand recognition will need to allocate more funds towards marketing to gain customers. On average, we recommend about 5-7% of gross sales towards marketing. If this number sounds high, take a look at where you can cut back to supplement your marketing needs.
Know your industry
For new and veteran business owners, it is essential to understand the risks of your organization and its industry. For example, if your industry typically has busy and slow seasons, you will likely need to break down an annual budget into a quarterly or even monthly budget. Before diving into creating your overall budget, do a little research on items that could affect your business in the coming year. Are there any new regulations, like health care changes, new overtime rules, or new tax laws? It’s a good idea to identify possible threats to get a better handle on how much of your budget can go towards each element like marketing, payroll, or contractor fees. Planning for a new year can feel like a daunting task. The future always holds uncertainty, and there is no way to plan for everything, but do the research now to be better prepared.
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Tally up fixed costs
The one item you can control is your fixed costs. Tally up your known expenses like office rent, payroll, website maintenance fees, insurance, marketing tool subscriptions, and taxes to get a handle on the total amount of cash going out month over month. Your tax obligations are subject to change, but as a general rule, most CPAs recommend you set aside about 25-30% of your earnings for quarterly taxes.
Lastly, be sure to include smaller expenses that can add up as part of your fixed costs. Run the numbers on how much you spent in the past on items like office supplies, mileage reimbursements, shipping costs, and membership dues for professional associations. Then set an amount for how much you would like to spend month over month for these expenses. If you notice these expenses are creeping close to your budgeted amount, figure out a plan on where you can make cuts.
Rainy day fund
Unexpected costs are bound to pop over the year. There are a variety of prices that could potentially disrupt your business, like a significant rent increase, repairs for a company vehicle, or high one-time costs. Don’t be caught off guard by these unexpected expenses. Make sure you protect your income by having some cushion in your budget. For example, you may find that your company needs a rebrand or website rebuild. These aren’t costs that you can expect year over year but could need to happen in the middle of 2020 to help increase sales, help build brand recognition, or support other marketing needs. Without a rainy day fund as one of these expenses pops up, you’ll need to rearrange your entire budget. Instead, prepare for the unknown by placing a certain amount of income month over month in a rainy day fund.
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Think about your customer acquisition cost
To make money, you need to spend money, and part of that money is your Customer Acquisition Cost (CAC). This is the amount of money it takes for your business to get a new customer. To calculate your annual marketing costs by the number of new customers acquired in that time. Knowing your CAC will help you determine how much you need to spend on marketing in the coming year and your growth. For example, if your CAC is $100 and your company wants to add 15 new customers each month, you could estimate that your marketing spends to be $1500 ($100 x 15 customers).
On top of your CAC, take some time to consider your Customer Lifetime Value (CLV). The customer lifetime value is the amount of money your brand brings in from one customer over their lifetime of doing business with you. Think of this number as your retention number. Calculating your CLV is especially vital to new companies that are in the customer acquisition phase. Knowing how much value a customer adds to your business will help you calculate how much you can spend per customer while still making a profit.
While none of these numbers won’t give you an exact formula for success, getting insight from these two calculations will help you find the best formula for your business and needs.
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Revisit budget monthly
Now that you’ve created your marketing budget be sure to review it regularly to ensure you stay on track. There is nothing worse than waiting till the end of a quarter to find out you’ve gone over budget and scrambling to make adjustments for the upcoming quarter. If you do happen to go over budget, don’t beat yourself, make the necessary cuts required to move forward with your business. Be flexible as the new year will bring changes. On a positive note, you may see higher income than you initially projected, allowing you to make additional investments to grow your business. Running a budget is a balancing act, so stay flexible.
Allocate some funds for marketing to help boost sales, up your Customer Lifetime Value, and increase brand recognition. If you’ve never created a marketing budget before or need some help, check out our free annual marketing budget template!
Have questions and want to consult the experts? Contact us today.