Most marketing leaders have virtually no finance experience. The benefits of having a balanced budget may not be immediately apparent, but they are nonetheless important. Growth and great branding are what you’re here for.
But this can be a problem. As a marketing manager or CMO, you have a lot of responsibility for how the company’s money is spent. A key part of being a good manager is spending money wisely.
We’re here to help make your job a little easier. You should leave today with a plan to take control of your marketing expenses. And you may even enjoy yourself along the way.
Time to get started. If you’d rather just grab a great budget template and take care of this all yourself, here you go:
Marketing expenses: a definition
We will discuss marketing and advertising expenses for your taxes in more detail below. We need to be careful about how we discuss these issues because they have legal implications.
Promotional costs associated with business are typically classified as marketing expenses. Traditionally, this has meant investing in print and production of physical collateral, advertising placements in print and on-screen, travel, and employee salaries.
The costs of today are likely the same as before, with the addition of digital advertising costs. Companies spend extraordinary amounts on Facebook and Google marketing.
There are also influencer marketing campaigns and online subscription payments – both relatively modern innovations.
A list of typical marketing costs
The “marketing mix” is expanding as digital marketing and growth hacking become more common. The umbrella of marketing now has a huge variety of different costs.
These include (but are certainly not limited to):
- Branding: creating your visual identity, logo design, and tone of voice
- Website setup and maintenance costs
- PR campaigns & crisis management
- Marketing automation tools
- Travel expenses
- Video conferencing and webinars
- Design and development costs
- Digital advertising (social and search ads)
- Video production
- Corporate gifts and samples
- Business cards
- Sales collateral
- Email signature management
- Agency and consultancy fees
- Attendance at trade shows and events
- Promoting and hosting your own events
- Search engine optimization and blogger outreach services
Some expenses may be tax deductible. We’ll go into more detail on this below.
Marketing managers have to work hard to keep up with all the different types of payments. Although it’s normal to forget things or go over-budget on a campaign, it’s not ideal.
Even though it’s natural, it doesn’t mean that it’s okay. A well-run business can’t afford to operate that way.
How can you manage all of these costs efficiently? We will discuss that soon, but we first need to talk about taxes.
Marketing and tax
This section provides an overview of marketing costs and tax principles. This shouldn’t be relied on as financial or tax law advice.
Readers in the UK can find more information about running a business at gov.uk, while readers in the US should visit irs.gov.
Even if you’re not an accountant, it’s important to understand advertising expenses. This means that businesses can reduce the amount of money they have to pay in taxes by taking advantage of tax deductible expenses. This means your business pays less tax.
Are marketing expenses tax deductible?
If a cost is related to making the goods you sell, it counts as a “production expense” and is not deductible. Advertising expenses are those that are related to promoting your brand and selling goods, while production expenses are those that are related to making the goods you sell. We’ll look at some specific exceptions to this below.
There needs to be a distinction between advertising and operating costs. You need to keep operating expenses separate for accounting purposes because they would be incurred even if they were not part of a marketing campaign. They include stationery, insurance, and other basic office supplies.
Deductions need to be ordinary, which means they are common and accepted in your trade or business, and necessary, which means they are helpful and appropriate for your trade or business. ” An ordinary expense is not considered necessary for the operation of your business. The IRS states that “an ordinary expense is one that is common and accepted in your trade or business.” An ordinary expense is not considered necessary for the operation of your business. A necessary expense is one that is helpful and appropriate for your trade or business. This means that the expense is something that is required in order to help you run your business smoothly and efficiently.
This is good news as it leaves a lot of scope for marketing expenses that can be deducted.
The most common deductible marketing costs include:
- Salaries and fees for marketing employees and contractors
- Costs associated with public relations
- Direct mail and other promotional collateral
- Business cards
- Sponsorships
You can usually deduct marketing expenses if you can show that they were primarily for promoting your business.
Now let’s look at the differences between rules in the United Kingdom and United States.
Marketing expenses in the U.K.
” In the United Kingdom, businesses can deduct the cost of advertising in newspapers, magazines, and other media such as radio, TV, cinema, and outdoors. This refers to the expenses incurred for creating your ad campaign, including the cost of coming up with the ad concept, writing the copy, and producing the ad, as well as the cost of placing or running the ad.
You can use it to sell products and services, generate leads, and even create brand awareness.” Your website can also be used as a marketing tool to sell products, generate leads, and create brand awareness. Ultimately, this allows you to recoup some of the costs associated with setting up and managing your small business. These costs can include domain registration, hosting, and design and development.
You can even get subscription payments for tools and industry publications.
You cannot claim entertainment as a tax deductible expense. If you want to take clients out and show them a good time, you’ll have to pay the entire cost yourself. The same goes for any marketing events you host.
VAT on marketing expenses (U.K)
The only time you can’t reclaim it is if you spend the money on goods or services not related to your business, or if you mix business and private expenditure.” The only time you cannot reclaim the VAT paid on goods and services is if the goods or services are not related to your business or if you mix business and private expenditure. If you are buying something for both business and personal use, you can only get a refund for the business portion of the value-added tax.
VAT is consistent with our general rule for taxes. This means that if the expenses are directly related to business, you may be able to reclaim the VAT.
HMRC gives a few clear exceptions:
- Anything that’s only for private use
- Goods and services your business uses to make VAT-exempt supplies
- Business entertainment costs
- Anything you’ve bought from an EU country (you may be able to reclaim VAT charged under the electronic cross-border refund system)
- Goods sold to you under one of the VAT second-hand margin schemes
- Business assets that are transferred to you as a going concern
Marketing expenses in the U.S.
The main difference between the rules in the U.S. and U.K. is that the U.S. has more rules regarding events. This means that if you spend money on an event for the purpose of promotion or advertising, you can deduct this expense on your taxes.
The IRS considers an event with a meal and entertainment to be advertising, so the full cost of the event can be deducted.
What’s not deductible:
- Political donations or advertising that indirectly aids a political campaign
- Personal hobbies like attending sports events, even if you go with a client
- Donations to some charities. This depends on the classification of the organization, and it may matter if you specify how the money is spent
- Losses as a result of promotional discounts
- Mileage (as an advertising expense)
It’s easy to get confused about that last one. Because vehicle advertising is deductible. If you put an ad for your business on your car (whether it is a business or personal vehicle), you can deduct the cost of the ad. However, you cannot deduct the cost of driving your car around town as an advertising expense.
How to Create a Marketing Budget
If you want to understand how you’ll spend your marketing money this year, spreadsheet knowledge alone won’t help you. To create a sound marketing budget, you need to know what purpose it will serve and which marketing teams it will represent.
1. Know your buyer’s journey.
Your buyer’s journey is the process that your audience undergoes as they move from being a prospect to becoming a paying customer. If you know the buyer’s journey, you can understand how your marketing works for your audience and where to set your goals and budget so you can better reach your customers.
Ask yourself these questions as you define your buyer’s journey:
- How do your leads and customers typically discover your products?
- What do they need to know before they make a purchase?
- How many site visits do you see per month?
- How many leads are you generating per month, and how many of these convert to paying customers?
- What is the cost of generating new leads and then converting them to customers?
- What’s the typical value/revenue of each lead?
This process can help you understand which marketing tactics are effective and which ones are not, so that you can make changes to your marketing goals and budget.
2. Align your budget with your marketing goals.
How you spend your money will depend on what your goals are.
When you are creating your marketing budget, make sure that you are only spending money on things that are required by your current marketing goals. These goals should be based on your audience and their journey from being a prospect to becoming a customer. These could include:
- Display ads to promote a new product you’re launching this year.
- Sponsored social media posts to generate followers on your new Facebook page.
- Paid search engine ads to drive traffic (and purchases) to a specific product page.
- Contract bloggers to get more organic search traffic to your company’s website.
So if you’re spending $10, $100, or $1,000 per click, the assumption is that if you just get more clicks, your cost-per-lead will go down.” According to Jessica Webb Kennedy, who used to work as a demand generation Marketer at HubSpot and is now the Head of Marketing at Tailscale, the amount of money you spend on paid advertising campaigns generally depends on how many clicks or impressions your ads receive. So if, for example, you’re spending $10, $100, or $1,000 per click, increasing the number of clicks should lower your cost-per-lead. You will usually want to spend more money on campaigns that have high-volume offers and audiences.
Your paid advertising costs will also change depending on your target audience.
“You can look at Twitter advertising as an example,” Webb says. “You have to option to target your campaigns based on users’ interests or keywords searched for. Interests are a much broader category, whereas smaller pockets of users are searching for any given keyword, therefore your interests-based audience is going to be much larger and require a larger budget.”
3. Beware of hidden marketing costs.
One advantage of having and maintaining a budget spreadsheet is that it helps you avoid freak-outs at the end of the quarter or year when you realize how much money you’ve spent.
Unanticipated costs can often catch marketers off guard and force them to spend more money than they had planned. Product marketing offers a perfect example. Meghan Keaney Anderson, who is the current CMO at The Wanderlust Group and was formerly the VP of Marketing at HubSpot, says that it is easy to forget that successfully marketing your products and services requires more than just promotion.
Anderson explains that when people budget for product marketing, they tend to mistakenly think product launches and promotional activities are the only expenses.
“That’s certainly an important part of it, but another area of focus to remember is setting aside resources to conduct research and message testing long before the product ever goes to market. Having conversations with customers about the pain points your product will ultimately address is critical to shaping the messaging and having a successful launch.”
4. Remember where your priorities lie.
There are many extras that come with marketing, such as upsells and “premium” versions. To assess what is nice to have and what is necessary, it is helpful to organize all expenses.
If you track your budget and compare it to the results you’re getting, you can figure out what to keep funding and what to cut.
We can use the world of public relations as an example. There are many tools available for PR which could result in overspending on areas that are not important, and underspending on areas that are.
The key to success lies in ensuring that you are focused on the people you want to reach and influence. Make sure that your budget supports the way they will most likely want to receive and share your key messages.
“As the media and digital landscape evolves at breakneck speed, continually reassessing the tools, services, and programs you’re employing is a great way to determine real-time ROI of your overall spend. Today’s measurement tool may be worthless to you tomorrow.”
5. Spend your budget smartly.
Don’t worry if you can’t select every option when you open the budget templates. I don’t think that marketing should always involve spending more money.
I’m advocating for an “always spend smart” approach. These aren’t mandatory expenses, just examples to help you think of everything you might need to spend money on.
6. Prepare to measure ROI.
You’ll want to see if your budgeting was successful in the area you spent money in so that you can plan future budgets accordingly. The most effective way to complete this task is by determining the ROI- or the return on investment.
If the money you spend on one item results in your company making more in return, increasing the budget for that item next year may be a good idea. If you’re not sure where your money is going, you should take a close look at your budget.
Create a Marketing Budget That Prioritizes Your Goals
A marketing budget that is well-thought-out can help guide your team to success. It’s important to keep your marketing goals in mind when revisiting the buyer’s journey, and to resist adding features that don’t align with those goals.
You should go now and plan wisely because your marketing staff is depending on you.
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