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How to create a marketing budget

Updated: Jul 27

For a small or medium-sized business owner, crafting a well-structured marketing budget is crucial for achieving growth and success. Allocating your resources wisely will ensure that you reach your target audience effectively while maximizing return on investment (ROI). In this blog post, we'll guide you through the process of creating a marketing budget that aligns with your business goals and drives results.

Set Clear Goals

Before diving into the specifics of your marketing budget, start by defining clear and concise goals. Your objectives should be Specific, Measurable, Achievable, Relevant, and Time-bound (SMART). Whether you aim to increase sales, boost brand awareness, generate leads, or improve customer retention, having well-defined goals will provide a roadmap for budget allocation.

Marketing goals

Setting clear goals also helps in determining the appropriate budget size. If you're looking to expand into a new market or launch a new product, you may need a larger budget to support these ambitious endeavors. On the other hand, if your goal is to maintain your current market share, a more conservative budget may suffice.

Understand Your Target Audience

Knowing your target audience inside and out is key to tailoring your marketing efforts effectively. Conduct thorough research to understand their preferences, needs, and behaviors. By identifying your ideal customers, you can direct your budget towards channels that will reach the right people, avoiding unnecessary expenses on irrelevant audiences.

Target Audience

One effective way to understand your target audience is by creating buyer personas. These are fictional representations of your ideal customers, based on demographic data, buying behaviors, interests, and pain points. When you have a clear understanding of your buyer personas, you can create more targeted and personalized marketing campaigns, which often yield better results.

Analyze Past Performance

Learn from your past marketing campaigns to make informed decisions for the future. Analyzing past performance involves looking at key performance indicators (KPIs) from previous marketing initiatives. These may include metrics like website traffic, conversion rates, click-through rates, and customer acquisition costs.


By identifying which strategies and channels performed well in the past, you can focus your budget on those high-performing areas. For example, if your social media campaigns consistently drove significant website traffic and conversions, it might be worthwhile to allocate a larger portion of your budget to social media marketing.

On the other hand, if certain marketing efforts did not yield satisfactory results, consider either optimizing these strategies or reallocating funds to more effective channels.

Conduct Market Research

Staying ahead of the competition requires continuous market research. Keep an eye on industry trends, market conditions, and your competitors' strategies. Market research will help you spot opportunities and threats, enabling you to allocate your budget strategically for the best results.

Market Research

Market research can be conducted through various methods, such as surveys, focus groups, competitor analysis, and industry reports. By staying well-informed about your industry's landscape, you can identify gaps in the market and potential areas for growth.

Determine Marketing Channels

Based on your target audience and goals, select the most appropriate marketing channels. Options may include social media, content marketing, search engine marketing (SEM), email marketing, influencer partnerships, traditional advertising, and more. Each channel has its strengths and weaknesses, so choose wisely.

Marketing channels

Consider the nature of your products or services and the preferences of your target audience when deciding which channels to prioritize. For example, if you have visually appealing products, platforms like Instagram and Pinterest might be excellent choices for showcasing them to potential customers.

Calculate Customer Acquisition Costs (CAC)

Understanding the cost of acquiring a new customer through each marketing channel is crucial for effective budgeting. Customer Acquisition Cost (CAC) is the total cost incurred to acquire one new customer, and it is calculated by dividing the total marketing expenses by the number of new customers acquired within a specific period.

Customer Acquisition Cost formula
Customer Acquisition Cost formula

This data will help you make informed decisions and allocate your budget to maximize ROI. For instance, if a particular channel has a high CAC but brings in high-value customers who make repeat purchases, it might still be a worthwhile investment in the long run.

Implement a Budget Allocation Formula

Combine historical data, market research, and CAC calculations to create a budget allocation formula. A common approach is to use the 70-20-10 rule, where 70% of the budget is allocated to proven and reliable marketing channels, 20% to testing new and innovative strategies, and 10% to experimental or speculative initiatives.

The 70% of the budget should be directed towards channels that have consistently performed well and provided a positive ROI in the past. These established channels are more likely to deliver steady results and contribute to the overall success of your marketing efforts.

The 20% is reserved for testing new ideas and strategies that have the potential to yield favorable results. By experimenting with innovative approaches, you can stay ahead of your competition and discover untapped opportunities.

The remaining 10% is allocated to experimental initiatives that may carry higher risk but also hold the potential for significant rewards. While not all experimental endeavors will yield immediate success, some may turn into game-changers for your business.

Test and Optimize

Start with smaller budgets and run tests to determine which marketing strategies perform best. This approach allows you to gauge the effectiveness of each channel without committing a large portion of your budget upfront. Continuously monitor and analyze the results, reallocating funds to the most effective channels while phasing out underperforming ones.

Test and optimize

Split testing, also known as A/B testing, is a powerful method for comparing different versions of marketing elements, such as ad copy, images, or landing pages. By running multiple variations simultaneously and comparing their performance, you can optimize your marketing efforts based on data-driven decisions.

Invest in Analytics

Implementing robust analytics tools is essential for tracking and measuring the performance of your marketing campaigns accurately. These tools provide valuable insights into what's working and what's not, helping you adjust your budget allocation accordingly.


Some key metrics to monitor include conversion rates, click-through rates, bounce rates, customer lifetime value (CLV), and return on ad spend (ROAS). Analyzing these metrics regularly allows you to identify trends and make data-driven decisions for your marketing budget.

Stay Flexible

The marketing landscape is constantly evolving, so be prepared to adapt your budget based on changing market conditions, customer preferences, and campaign performance. Flexibility allows you to seize new opportunities and respond to challenges effectively.

Emerging technologies, shifts in consumer behavior, and changes in market dynamics can all impact the performance of your marketing efforts. As such, it's essential to regularly review your marketing budget and be open to making adjustments as needed.

For example, if a new social media platform gains significant traction among your target audience, you may want to allocate additional funds to explore its potential. Conversely, if a once-effective marketing channel starts to underperform, it might be time to reallocate resources to more promising avenues.

Monitor ROI

Regularly review the ROI of your marketing efforts to assess the effectiveness of your budget allocation. Focus on optimizing campaigns that yield the highest returns and consider reinvesting profits into successful marketing channels.


To calculate ROI, subtract the total marketing expenses from the total revenue generated by your marketing efforts. Divide this value by the total marketing expenses and multiply by 100 to get the ROI percentage. By regularly monitoring your ROI, you can identify areas where your marketing budget is delivering the best results and areas that may require adjustments.

How to create a marketing budget Conclusion

Creating a marketing budget is a dynamic and iterative process that requires careful planning, analysis, and adaptability. By setting clear goals, understanding your audience, analyzing past performance, and conducting thorough research, you can build an effective marketing budget that drives success for your small or medium-sized business.

Remember to continuously test, optimize, and monitor ROI to stay ahead of the competition and achieve sustainable growth. With the right strategy and budget allocation, your marketing efforts will lead to increased brand visibility, customer engagement, and ultimately, business success. By investing in analytics and staying flexible, you'll be well-prepared to navigate the ever-changing marketing landscape and make data-driven decisions for the future.

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