Explains how to determine optimal marketing budget allocation and the decision-making process

Marketing is an essential activity for a company to increase sales. If the budget allocation to marketing is not appropriate, it may result in missed opportunities.

You might be interested in learning more about how to optimize your company's marketing budget allocation.

In this article, we will explain how to determine a marketing budget, key points to consider when allocating the budget, and provide an overview of MMM (Marketing Mix Model), which enables highly accurate budget allocation.

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Marketing budgets are on the rise

First, let's look at how marketing budgets work and what guidelines to use when deciding on a budget.

Marketing is important

Marketing measures that contribute to sales are one of the activities that build a company's foundation. Marketing can be divided into several types as shown below, and it is important to adopt methods that suit your company's needs.

Amidst changing market conditions, CMOs (Chief Marketing Officers) of mid-sized and large companies, in particular, anticipate an increase in marketing budgets. Globally, there is a growing trend of companies focusing on marketing, making it necessary to identify key strategies within their own organizations and allocate the optimal marketing budget accordingly.

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Decide the optimal marketing budget allocation based on "contribution to goals"

In recent years, the main areas to focus on when allocating your marketing budget are as follows:

• SNS management and SNS advertising
• E-commerce
• Owned media
• Video Utilization
• Online events, seminars and exhibitions
• Web customer service

The amount of budget to be allocated to each item should be determined based on the contribution of each item to the goals of the company. For example, if you want to increase the number of leads from younger generations, it may be a good idea to focus on managing official SNS accounts and placing advertisements.

On the other hand, it is important to limit the budget allocation to measures that have a low contribution. In some cases, you may need to review or cancel the measures.

How to determine your marketing budget | 4 steps

Here are four steps to allocate your marketing budget:

STEP 1: Define your marketing goals

First, determine your sales goals based on your company's past records, comparisons with competitors, market conditions, etc. Then, use the sales goals as a basis to determine the goals that your marketing department will work on.

Specific goals can be set as "the number of leads acquired in a year," "sales acquisition rate," "retention rate (maintenance rate of existing customers)," etc. When setting goals, it is important to have the perspective of how the marketing department can contribute to sales.

STEP 2: Identify necessary measures and the issues for each measure

Next, identify the measures necessary to achieve the goals determined in STEP 1 and identify the issues associated with each. Calculate the expected contribution of each measure to achieving the goal through past data analysis, etc.

In particular, the measures taken in the previous year are an important point to consider when analyzing data. For example, if you are running listing ads and the cost per customer acquisition exceeds your target budget, then improvements are needed.

Optimize your marketing efforts by eliminating old ones and implementing new ones so that you can implement the right marketing measures to achieve your goals.

STEP 3: Calculate the necessary costs, number of conversions, and cost per customer acquisition

In this step, you will calculate the cost required for each measure, the number of conversions, and the cost per customer acquisition. It is especially important to include estimates for the cost of new measures based on estimates from sales companies and data within the industry.

By calculating these costs, you can calculate the return on investment (ROI). ROI is a quantification of the profit rate against the invested cost, and the higher the value, the greater the effect of the investment.

For example, no matter how much the number of conversions increases, if advertising costs exceed profits, sales targets will not be achieved. By prioritizing measures with the highest possible ROI, you can keep costs down and operate effectively.

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• What is ROI analysis? From the basics of marketing ROI calculation to improvement approaches that lead to business growth

STEP 4: Allocate your marketing budget to each campaign

Create a marketing budget proposal for each initiative based on the previous year's ROI, new ROI, sales goals, etc. Once the budget proposal is created, discuss it with management and decide the final budget allocation.

In that case, the person in charge can explain it to the management smoothly if they prepare the materials used for the analysis. Also, keep in mind that it is likely that they will check whether the budget allocation is based on a medium- to long-term perspective.

Articles about simulations that are useful for budget allocation

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Key points for optimal marketing budget allocation

From here, I will explain two points to optimize the allocation of your marketing budget.

Verify cost-effectiveness

After setting a budget, it is important not to blindly promote marketing initiatives, but to regularly verify the cost-effectiveness of each initiative. By establishing a system for constantly reviewing whether budget allocation is appropriate, you can take flexible action on marketing initiatives that should be prioritized.

Another important point in mid-way verification is to set KPIs (key performance indicators). By defining KPIs, you will be able to quantitatively measure progress toward your goal and share the effectiveness of your measures with the entire team.

Allow room in your budget

Because the market environment is constantly changing, it is important to allocate your marketing budget to a certain extent rather than to the utmost, in case new measures are suddenly required or the priorities of measures change midway.

For example, even if you have allocated a large budget to programmatic advertising, if you find that owned media marketing is more effective, you may want to change the budget allocation midway. By leaving some leeway in your budget and having a system in place that allows for flexible operation, you will be able to carry out marketing that can respond to changes in the market environment.

Consider using MMM to calculate optimal budget allocation with high accuracy

You could also consider using MMM as a way to optimize your marketing budget allocation.MMM (Marketing Mix Model)It is an analytical method that quantitatively quantifies and visualizes the impact that marketing initiatives have on results.

By utilizing MMM, you can optimize your marketing budget to meet your goals.

Another benefit of MMM is that it allows you to analyze the mutual influence of measures and external factors. This makes it possible to perform comprehensive analysis that is difficult to do with traditional consumer surveys and log analysis, allowing you to allocate budgets with an eye on your company's overall marketing measures.

Another advantage of MMM is that it does not require data related to customer privacy. In April 2022, cookies will be subject to regulation following the enforcement of the revised Personal Information Protection Act, and the digital marketing environment is changing dramatically.

In such a situation, MMM, which allows for analysis using data on external and internal factors, can be said to be a particularly easy method to utilize in future marketing.

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Summary

When deciding on a marketing budget, it is important to first determine the goal of the activity, then identify the necessary measures and issues, and calculate the necessary costs and number of conversions, etc. However, in order to increase the effectiveness of marketing activities, it is unavoidable to verify the cost-effectiveness.

With MMM analysis, you can allocate your budget to the optimal level to achieve your sales targets. You can calculate simulations to maximize results within a predetermined budget, as well as simulations of the minimum budget required to achieve your goals.

Author information

XICA Co., Ltd. Marketing Team