4 Questions to Decide Your Marketing Budget | Captain Coder

4 Questions to Decide Your Marketing Budget

Marisa VanSkiver / March 28, 2022

setting a marketing budget

If you’ve ever talked to a marketing agency about working with them, they’ve likely asked you the most dreaded question: What’s your budget?

Every single time I ask my customers this question, about 70% of them get a glazed look in their eyes or just don’t know how to respond.

You might have a rough idea of what you can afford, but how can you possibly know what to budget for your digital marketing?

Budget is wholly dependent to your business, but there are a few questions that you can work through to find out what your own should be. Grab something to write with and open up QuickBooks or Honeybook so we can get these numbers right!

What’s Your Monthly Revenue?

The first question you need to figure out is what your average monthly revenue looks like. The easiest marketing budgets are built around your income and are based on a percentage of that. Newer businesses should expect to spend more – about 12-20% of their revenue – where more established companies can spend a little less.

If you’re bringing in say $10,000/month, you may want to plan on spending $1,200-2,000/month on marketing.

That number does not represent just an ads budget or one piece; it should be everything you’re doing to add up to that.

How Much Profit Does Each Sale/Customer Make?

With a basic number in mind, you need to figure out how much profit the average sale or customer makes you.

For a lot of service providers, you’re trading your time for dollars, so you’ll want to keep that in mind. If you use any subcontractors to help you complete work for clients, paid tools, online subscriptions, or anything else that is a job supply, you’ll want to calculate that in as well.

Let’s break this down. Say you sell a $2,000 coaching package that spans the course of 2 months. That’s $1,000/month in revenue. If you have a one hour call each week and then you spend about 4 hours per week taking care of behind-the-scenes work, you’ll average about $50/hour in gross revenue.

To run that program, you need to pay $100/month for your online communications tools and perhaps you pay a VA $50/week to help you out with tasks for that client.

Breaking all that down, you’re making about $35/hour or $1,400 gross profit from that one client. That number adjusts the more clients you have, because the more clients you have using those tools and the VA, the less you’ll pay per client.

You need to figure out roughly how much each client is worth to you because that will help you break down what you’re willing to spend per click, per lead, and per sale throughout a digital marketing campaign.

What’s Your Time Worth?

This answer is a lot easier if you charge per hour, but if you use a flat-rate billing system, you’ll want to know roughly how much each hour of your time is worth.

You may have figured this out while figuring out what each customer is worth, but if you didn’t, you can calculate it roughly the same way. Just divide the overall project fee by the amount of hours that you might typically put into the project.

This matters immensely, because especially if you’ll be doing any of your own marketing (like creating blog posts, videos, recording podcast episodes, posting on social, etc), you need to figure that into your overall marketing budget.

Your time is money and while it may seem cheaper to do it all yourself, it actually may save you money to pay for someone to come in and help you.

Think of it this way – what might take you 4 hours may take an expert only 1. Even if they charge $90/hour to your $50/hour, you’re still saving $110 on that project fee and opening up your ability to do more client, billable work.

No marketing is ever free. It all costs us money somewhere.

What ROI Are You Hoping For?

The last and most important question – what kind of Return on Investment are you hoping for?

The easiest way to do this is to decide on a SMART goal up front. Say for instance that you want to increase your revenue from $8,000/month to $12,000/month over the next quarter. If you’re looking for 67% increase in revenue, your ROI needs to reflect that.

If you decide to run some Google Ads for instance, you might be more than willing to spend $500 on ads if it will net you $4,000 in additional sales.

This is where that customer worth comes back into play. When you know what each customer and each sale is worth, it’s far easier to calculate what you’re willing to spend in a month to increase that.

Marketing is an Investment

All too often, business owners view marketing, and especially online marketing strategies, as a drain on their expenses. They think that “anyone” can do it, so they feel like hiring someone is a luxury or even a waste of money.

But good marketing can and should be an investment. It should net you an ROI and help you to increase your revenue steadily over time.

When you know how much you can spend, it will help you to find the right person to work with and be more comfortable answering that budget question.

Having a proper budget unlocks your marketing strategies, not make it more difficult.

Use the steps above to have a budget ready and start looking for the right ways to invest back into your business.

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