It's that time of year again, when marketers are figuring out how to allocate their resources to meet or beat their goals next year. Here are some important things to keep in mind as you build your marketing budget for an upcoming financial year or quarter.

(These tips are ideal for marketing teams of 10 or more, but the best-practices within apply to all.)

Where to Start: Top-Down or Bottom-Up?

Top-down marketing budgeting is done according to marketing investment targets. Usually the CFO or CMO, or both, divide dollars up into several big buckets of spend. Marketing leadership will typically divide the total marketing spend available according to functional area (field marketing, product marketing, etc.) or by cost center. Next, midlevel marketing leaders (directors of field marketing, for example) will further divide their bucket of spend in a way that makes most sense for their team.

Bottom-up marketing budgeting occurs when individual marketers start with a laundry list of programs and activities they'd like to spend money, on and one by one they pick which of those will be added to the budget. This approach is common in startups, small organizations, or businesses with less mature marketing operations functions.

Our recommendation? Jennifer Cracklen, our lead education consultant who helps enterprise marketing teams get set up their marketing budget processes, recommends a hybrid approach: Start with top-down target-setting, followed by building a bottom-up activity plan. This approach gives marketers the autonomy to plan their budget the way they feel is most appropriate while still staying true to the overall priorities marketing leadership has established.

Eight Steps to Building Your Marketing Budget

When it's time to actually build out your budget, here's what the process might look like. Of course, there will be lots of organization-specific variations, but this basic structure is one used by high-performing organizations.

1. Your marketing team receives its spend targets from the top-down budgeting process undertaken by your leadership or by Marketing Operations. Now you know how much money you have to invest for the year, so it's time to sit down as a team and make some decisions.

2. List all the activities your team may want to execute during the year, along with their estimated costs, and organize them into relevant groupings. Make sure to consider marketing activities or commitments you've made in the previous year. Thanks to accruals, those items will be part of the marketing budget of the year in which they occur—not the year during which the cash went out the door.

3. As you pare down your list to include only what you believe will fit into your spend targets, start populating your budget in whatever system you use (some companies use a marketing performance management tool like ours, others use Excel.) Note all the information about each line item you may need to state for reporting purposes, such as vendor, target audience, product line, region, CRM campaign, etc.

4. Step back and assess each budget. Does it align with your targets? Refinements are likely necessary, and marketing budgeting software is often used to help you do just that. This is stage at which the hard questions typically emerge: What can we take out, and what should we leave in? What will the impact of those decisions be?

5. Send your budgets off for internal review. Cross your fingers.

6. At this point, there's a process of adjustments, with the budgets going back and forth between the marketers who've built the budget and their leadership.

Two-week cycles are common here: two weeks to define initial plan, two more weeks for the first review, two more weeks for additional adjustments, etc. On average, the full process may take around two months, although that can vary widely—especially if the numbers have to be approved by a board of directors.

Effective marketing budget planning takes time. Start the process 3-6 months before the start of the fiscal year so the various marketing teams have ample time to define tactical plans.

7. Marketing leadership assesses the budgets. They're looking for two things:

  • Compliance: Did all the marketing teams plan the way they should have, and did they do it on time? Do their budgets align with their investment targets?
  • Performance: Marketing leaders will spend time analyzing each team's intended uses of their funds. They'll pay particular attention to whether the planned marketing investments adequately support overall business objectives.

8. Marketing leadership approves the budgets. Now it's time to get out there and start doing marketing!

Bonus: Avoid These Budgeting Pitfalls!

Don't fall prey to these three pitfalls you can come across surprisingly often during the budgeting process:

  1. Not remembering marketing activities that carry over from one budget period to the next. It's easy to forget about subscriptions, retainers, and prepaid vendor agreements (such as conference exhibit fees). These are non-negotiable pieces of this year's budget, and failing to include them in the plan will create confusion later.
  2. Not capturing your originally planned budget amounts. Undoubtedly, your budgets will undergo many modifications throughout the year. The line items will change, and so will the amounts. That's normal. As this happens throughout the year, however, too many organizations simply overwrite the original budget. They lose the ability to look at metrics such as plan vs. forecast (to help stay on budget) and plan vs. actual (to see how accurate the budget planning was). Make sure you have a way of capturing your original budget plan.
  3. Not allowing enough time. Year after year, we hear from organizations that are taken by surprise by how long the budgeting process can take.

Start early, analyze often, and remember that this is part of how you run marketing so you can do great marketing.

Want more advanced tips?

The above-outlined eight steps are the basics of building out a marketing budget. But organizations looking to become more strategic in their budgeting process can find more advanced marketing budgeting and planning advice in "The Gold Medal Playbook of Marketing Planning" (registration req'd).

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An Eight-Step Guide to Building Your Marketing Budget

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image of Matt Davis

Matt Davis handles content marketing for Allocadia, a provider of marketing performance management software.

LinkedIn: Matt Davis