Marketing budgeting methods for marketers in 2025

Marketing Budget – Strategic planning in a volatile era

Allocating a marketing budget has always been a strategic task to define a business's direction. However, in today’s highly volatile market environment, this challenge has become increasingly complex, requiring more meticulous calculations than ever before. According to Gartner reports, the proportion of marketing budgets relative to total revenue is trending downward in 2024. This trend pressures 75% of Chief Marketing Officers (CMOs) to “do more with fewer resources,” while simultaneously reassessing the tools, resources, and technologies they currently use.

To address this, businesses need to adhere to core principles of budget allocation, using analytical data as the foundation for every decision. At the same time, a flexible strategy can adapt effectively, optimize return on investment, and ensure profitability. Below are some practical guidelines to help businesses plan a marketing budget that aligns with both their needs and business circumstances.

I. Overall assessment: Where does your business stand?

Before setting a marketing budget, businesses need to evaluate current financial performance by identifying the following key metrics:

1. Determine CAC and CLV

• CAC (Customer Acquisition Cost): total cost to acquire a single customer.

• CLV (Customer Lifetime Value): the average value a customer brings over their lifetime.

• A CLV greater than 3 times CAC is considered reasonable.

2. Review ROI of Marketing Channels

Businesses should not rely solely on individual channel ROI. A multi-touch attribution analysis is essential to accurately evaluate past budget effectiveness across all marketing touchpoints.

>>> Learn more about ROI measurement methods and marketing effectiveness here.

3. Evaluate Internal Strengths and Weaknesses

Assess whether human resources, data, technology, etc., match the scale of operations. Are there any gaps in resources? Additionally, review the performance of invested channels to ensure they operate effectively.

II. Set clear marketing objectives

Defining clear marketing objectives is a foundational step to building an effective and goal-oriented budget plan. Objectives not only guide the entire campaign but also determine how resources should be allocated according to business priorities. Potential objectives include:

• Revenue growth (Revenue growth)

• Increase brand awareness (Brand awareness)

• Lead generation (Lead generation)

• Enter new markets

• Launch new products

To ensure the budget serves its purpose, each objective should be clearly quantified with key performance indicators (KPIs) that can be tracked and measured, such as:

• Increase organic traffic by 20% within 3 months.

• Reduce Customer Acquisition Cost (CAC) by 15% through campaign optimization.

Linking objectives to KPIs helps businesses control investment effectiveness, make timely adjustments, and demonstrate marketing’s contribution to overall growth.

III. Choose the appropriate budget allocation model

Currently, there are two main approaches to constructing a marketing budget:

• Top-down budgeting: Leadership or finance departments propose the overall budget, after which the marketing team allocates funds to specific activities and channels. This method ensures tight budget control, suitable for companies with a clear financial strategy or those aiming to optimize costs.

• Bottom-up budgeting: The marketing team proposes a budget based on detailed action plans, including campaigns, objectives, and expected metrics. The plan is then submitted for approval by senior management. This method promotes flexibility and creativity, suitable for businesses targeting strong growth or precise ROI measurement for each activity.

There are 5 common budgeting methods based on these two models:

1. Percentage of Revenue

This top-down method sets the budget as a fixed percentage of projected revenue – e.g., 5% or 10% annually.

Advantages:

• Easy to forecast and calculate, suitable for businesses with limited resources or without complex performance tracking systems.

• Cost control, ensuring the marketing budget scales with actual activity levels.

Limitations:

• Not flexible to market fluctuations – if revenue drops, the marketing budget is cut, making it difficult to maintain brand presence.

• Not goal-oriented, potentially missing growth opportunities if under-invested during critical phases.

2. Objective-Based Budgeting

Objective-based budgeting calculates the budget starting from final goals – e.g., desired leads or revenue – to determine the necessary investment. This bottom-up approach requires marketers to understand metrics like CPA, ROAS, conversion rate to estimate investments accurately. Additionally, businesses should allocate appropriately between two main groups:

• Branding: build long-term brand recognition and value.

• Performance (Sales activation): drive short-term purchase behavior.

Research by Les Binet and Peter Field shows that brand-building and sales activation work effectively over different time horizons. Performance campaigns boost short-term sales, whereas brand-building accumulates sustainable growth, enhancing base revenue and lowering long-term conversion costs.

The chart illustrates:

• Sales activation (yellow line): creates short-term sales spikes, but declines rapidly if not maintained.

• Brand-building (orange line): does not generate immediate spikes, but gradually increases revenue base consistently.

Therefore, budget allocation should balance: Branding for long-term brand value and Performance to drive immediate purchase actions. Recommended ratios:

• Short-term: 40% brand – 60% performance.

• Long-term: 60% brand – 40% performance.

3. Competitive Parity

Competitive parity budgeting is a common top-down approach used by businesses to align marketing investment with the industry standard. Instead of calculating the budget based on internal goals, companies refer to competitors’ budgets, spending ratios, or media presence of similarly sized brands. The goal is to prevent the brand from being "drowned out" in the media race, ensuring sufficient visibility to maintain market share.

An important principle supporting this approach is the relationship between Share of Voice (SOV) – the brand’s media investment relative to the industry – and Share of Market (SOM) – the market share held by the company.

The classic chart shows:

• If SOV > SOM, the brand tends to grow market share – as media investment exceeds the current market share. Companies can maintain or optimize media spend for brand visibility, particularly in branding activities for long-term growth. At the same time, focus on converting reach into actual conversions via well-designed performance campaigns.

• Conversely, if SOV < SOM, the company risks losing market share, as media presence is insufficient to maintain competitive position. In this case, consider increasing marketing budget, especially in channels that ensure continuous brand presence (mass media, digital branding, social). If budget cannot be increased, maximize efficiency by selecting the right segment, message, and timing to optimize every dollar spent.

However, this approach has limitations:

• Can lead to dependency mindset, merely "following" instead of proactively leading the market.

• Does not reflect true potential or strategic priorities of each brand.

4. Funnel-Based Budgeting (TOFU - MOFU - BOFU)

Another bottom-up strategic approach is allocating budgets according to customer journey stages, selecting appropriate channels for each funnel stage and key KPIs. Specifically:

TOFU - Top of Funnel

• Channels: social organic, awareness ads, influencers, PR.

• Goals: impressions, reach, visibility.

• Budget share: ~40-50%

MOFU - Middle of Funnel

• Channels: email nurturing, remarketing, deep content.

• Goals: leads, form submissions, repeat visits.

• Budget share: ~30-40%

BOFU - Bottom of Funnel

• Channels: paid search, direct sales, product samples.

• Goals: orders, revenue.

• Budget share: ~10-20%

5. Hybrid/Flexible Budgeting

This approach combines multiple budgeting methods such as objective-based, competitive, or revenue percentage to create a plan that suits each campaign stage and priority level.

Advantages of this model:

• Flexible adaptation to market changes, especially in industries with fast purchase cycles or trend-sensitive markets.

• Resource optimization by timing, e.g., boosting performance during peak season and investing in branding during brand-building phase.

• Leveraging strengths of each method while mitigating drawbacks of using a single approach.

For brands operating in highly competitive or fast-changing industries, the hybrid model is considered an effective solution to balance short-term performance and sustainable growth.

>>> Besides the methods above, many companies also use combined ratios like 4/4/2, 7/3, or 6/4. See details here.

IV. Additional notes for budget allocation

In addition to allocation models and funnel principles, businesses should pay attention to the following factors to avoid budget leaks and ensure long-term effectiveness:

1. Do not allocate the entire budget to performance channels

Although channels like paid search or social ads can generate quick orders, investing only in these channels while neglecting branding or valuable content will make it difficult to build long-term brand value.

2. Allocate budget according to business cycles and seasons

Marketing budgets should be flexible across quarters, especially in retail, travel, fashion, etc. Peak periods require increased investment to seize opportunities, while low periods should focus on system optimization, CRM, and content.

3. Reserve budget for experimentation

Always allocate 5-10% of the budget to test new channels, ad formats, or creative campaigns. This allows businesses to stay updated with trends and explore potential growth opportunities.

4. Monitor and adjust budgets in real-time

The market is constantly changing, so monitoring the performance of each channel weekly or monthly helps adjust cash flow flexibly, instead of keeping a fixed quarterly or yearly budget.

>>> Learn more about factors affecting ad costs and optimization methods.

5. Optimize according to marginal cost-benefit

Instead of only looking at total ROI, analyze the marginal cost-benefit to identify the tipping point: which channels are experiencing diminishing returns and should reduce investment, and which channels still have room for growth.
Currently, SmartAds is implementing Brandformance – combining brand building and performance optimization, directly linked with reputable publishers. This solution is designed to help businesses reach the right potential customers at optimal cost and improve conversion rates, making it easier to achieve their media plan objectives.

>>> To help you plan marketing more effectively, SmartAds offers a free template set, available with just a few simple steps below. NOTE: The templates will be sent to the email addresses that register for the first time on the system: