Calculating your Marketing Budget

This section is going to help you to calculate the budget for your online marketing activities.

Calculate Marketing Budget

Many online sources recommend to simply use a percentage of your revenue and invest back into marketing, but this does sound a little speculative to us. You can reduce some of the guess work by calculating your budget using the formula below.


All online marketing activities should be bound to KPI's that will allow you to measure the return on investment.


The blue values are calculated for you, you only need to know the black values based on your past sales records:

Goal$ 1,000,000How much do you want to sell?
Average Transation Value$ 50,000What’s the average sale?
Closing Ratio10%How many of your leads do you want to convert to sales?
Less Required200(Goal / Average Transaction / Closing Ratio)
Conversion Rate1%What is the estimated conversion rate? Conversion rate = users that take action in response to marketing efforts such as click, view, share.
Conversion Required20,000(Leads Required/Conversion Rate)
Marketing budget per sale$ 1,000How much are you willing to spend per sale.
Marketing budget Total$ 20,000(budget per sale x transaction required to hit sales goal)
Max. cost per lead$ 100(Marketing budget total/Leads Required)
Max Cost per Conversion$ 1(Marketing Budget Total / Conversions Required)

There are still a couple of additional things to consider:

  1. This calculation does not consider the customer lifetime value. This means it focuses on a single sale and does not consider that once you have converted a lead into a customer the customer may buy more products over time. Existing customers also require to be part of your marketing plan; this formula just simplifies things.
  2. Expected business growth needs to be added to the goal value.
  3. Marketing Budget per Sale needs to be constantly monitored as a drop in Closing Ratio or Conversion Rate will have an instant impact on our CPL and CPC. Example: if your closing ratio would drop to 5% in the above example you would have to double your marketing budget to keep the CPL up at $100 and meet your sales target.

The above example should give some ideas on how to calculate your marketing budget and remove some of the guesswork.

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