Most marketing leaders have virtually no finance experience. The benefits of a well-balanced budget don't get you out of bed in the morning. Growth and great branding are what you're here for.
But this can be a problem. Because as a marketing manager or CMO, you're in charge of a lot of company money. And spending wisely is a key part of the job.
We're here to make that job a little bit easier. At the very least, you should leave here today with a clear gameplan to take control of your marketing expenses. And you may even enjoy yourself along the way.
In this guide you'll find:
- A simple definition of marketing expenses
- A list of the most common marketing costs
- How advertising expenses work for tax
- A seven-step strategy to manage marketing expenses better
- Some guiding principles to help you cut costs
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’re going to talk about marketing and advertising expenses for your taxes in more detail below. These have specific legal implications, and we want to be careful with how we talk about these.
But in general, marketing expenses are simply the costs incurred in promoting your business. Traditionally, this meant printing and production of physical collateral, advertising placements in print and on-screen, travel, and employee salaries.
Today you likely have all these same costs, plus ever-growing 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 full “marketing mix” is constantly growing as digital marketing and growth hacking become the norm. We now have a huge variety of different costs that fall under the marketing umbrella.
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 (but not all) of these will be deductible costs for tax purposes. We’ll go into more detail on this below.
The biggest challenge for marketing managers is to stay on top of all of these different payments. It’s quite natural to miss things - to forget about an ongoing subscription or run over-budget on a big campaign.
But just because it’s natural doesn’t mean that it’s acceptable. A well-run business can’t afford to operate that way.
So how can you monitor and manage all of these costs efficiently? We’ll get to that in a moment, but first we have to talk about tax.
Marketing and tax
This section gives a broad overview of marketing costs and tax principles. You should not rely on this as financial or tax law advice.
Advertising expenses are important to understand, even if most marketers themselves never have to worry about the accounting implications. Tax deductible expenses let businesses reduce the amount of taxable income they report each year. This means your business pays less tax.
Are marketing expenses tax deductible?
Very generally, if a cost is related to promoting your brand and selling goods, it counts as an “advertising expense” and is deductible. We’ll look at some specific exceptions to this below.
But you need to draw a line between advertising and operating costs. Operating expenses would be incurred whether or not they were part of a marketing campaign, so for accounting purposes you need to keep these separate. They include stationery, insurance, and other basic office supplies.
The other guiding principle is that all tax deductions need to be ordinary and necessary. According to the IRS, “an ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.”
The good news is that this leaves a pretty broad scope for deductible marketing expenses.
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
Most of the time, if you can show that a cost was incurred principally for the purpose of promoting your business, it will be a marketing expense.
Now let’s go further and take a quick 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 expenses “for advertising in newspapers, magazines and other media such as radio, TV, cinema and outdoors. This includes the cost of designing, writing and producing your advertisements as well as the cost of placing them.”
“Your company website is also a legitimate marketing and advertising tool. This means you can claim for the costs of setting it up and managing it. These include domain registration, hosting and design and development costs.”
You can even claim subscription payments for tools and industry publications.
What you absolutely can’t claim as a tax deductible expense: entertainment. If you want to take clients out and show them a good time, you’ll have to bear the full cost of that. The same goes for any marketing events you host.
VAT on marketing expenses (U.K)
HMRC explains that "you can usually reclaim the VAT paid on goods and services purchased for use in your business. If a purchase is also for personal or private use, you can only reclaim the business proportion of the VAT."
So VAT fits in with our general rule for taxes above. That is, provided it's directly related to business (and these aren't entertainment expenses), there's a good chance you can reclaim the VAT.
HMRC gives a few clear exceptions:
Marketing expenses in the U.S.
The big difference between rules in the U.S. and U.K. revolves around events. If an event is specifically for promotion and advertising, this is a deductible expense in the United States.
“If you have a grand opening event for your local community that includes a meal and entertainment, the IRS considers this advertising, and you can deduct the full cost of the event, including food and entertainment.”
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. “You can deduct the cost of putting an advertisement for your business on your car (business or personal), but you can't deduct the cost of driving your car around town as an advertising expense.”
How to properly manage marketing expenses
Time for a little strategy. You need to know exactly where your marketing budget is going. And more importantly, you want to be able to put your company cash to its best possible use.
Here’s how to achieve that.
1. Set clear marketing goals
It’s a cliché, but failing to plan is planning to fail. And good planning always begins with identifying your goals and targets.
This is obvious, and we won’t go through the whole process here.
But if you’ve never set goals before, the SMART method is always a good starting point. This means they need to be:
As usual, the HubSpot blog is a great place to start for marketing help. Check out their post on SMART goals (with examples).
Lake One Digital has great advice: "Look at industry benchmarks. It’s also a good way to see how well you’re performing against peers. The key is to pick goals that are relevant to your business at this stage. Are we looking to drive bottom of the funnel metrics like sales and leads?"
Why do you need goals?
Once you’ve defined exactly what you want to achieve, you have a better idea of where to deploy company money. If a particular campaign or action will help you get to these targets, it deserves financial support.
If not, you can probably let it go.
2. Choose your marketing strategy
As Nathan Ellering writes for CoSchedule, "a marketing strategy provides the roadmap for you and your team to execute well-planned projects you’ll measure against a clearly defined goal.
This process not only helps you target the right audience with the right content and the right level of effort, but helps you literally understand the impact marketing projects have upon the growth of your organization."
Do you want to put your resources into a thriving website and blog? Will you pump large sums into LinkedIn and Facebook ads, and focus on optimizing conversions? Or will you focus on building a large email list to send tailored email blasts?
There is a lot of cheap email marketing software available these days, so perhaps you'll set aside a small portion of the budget for that, for example. Among the best-known are MailChimp, Constant Contact, Moosend, and Sendx.io. Once you select the right one for your needs, you'll need to set aside a small portion of the budget for that, for example.
To properly plan out your budget for the year (coming shortly), you need to know how reliant you’ll be on each action.
We’re going to carry on with the financial gameplan, and assume that you’ve thought about your marketing strategy already. If you need help with the latter, here’s an excellent guide to building a content marketing strategy.
And of course it can be used for a whole range of marketing challenges and techniques.
3. Create (or download) a good marketing budget template
To stay on top of costs, you need to track spending in one place. For this, the simplest option is to have a master marketing budget template that you can update and refer to regularly to make sure you’re on the right track.
This will let you plot out your proposed spending at the beginning of a quarter or year, and line up each likely expense with the goals you’ve already set. And then vitally, you’re able to keep it up to date in real time as your team spends its budget.
For most companies, important expenses will include:
- Marketing software (including automation tools and a CRM)
- Design and development of digital and physical assets
- Travel to events (and the collateral your marketers take with them)
- Digital advertising for search and social media
- One-off campaigns to generate leads or build awareness
This should have room for consistent, ongoing expenditure - like subscription payments for tools - and unknown (but significant) one-off costs for campaigns and events.
And since you're looking, here’s a great (free) template you can use:
4. Set out your budget
Once you have a good budget template ready, it’s time to fill in the gaps and put actual spending proposals in place.
As the marketing manager, you’re probably not ultimately in charge of the company funds. You’re given a lump sum for your team, and it’s your job to figure out how much money to put where.
The great part about building a clear marketing budget from the beginning is that it shows the executive team that you’re on top of everything. More importantly, once expenses are validated by the CEO or CFO, that’s now your money to spend. And you can remind them from the beginning how important each cost is to hitting your targets.
Some founders and CEOs keep a much tighter grip on the purse strings. They expect you to come to them for every single purchase, and to keep spending as low as possible.
While this might potentially keep overall spending down, it gives less context to each individual purchase. They don’t always know why you’re spending a certain amount in relation to your team’s goals. You just know you need the money for this week’s campaign.
In the long run, this makes marketing money much harder to manage.
The best case scenario is to set out your budget for the full year, broken down into quarters (or even months). If company executives aren’t willing to sign off on this, push for a quarterly budget at least.
And watch out for surprises! According to Allocadia, "it’s easy to forget about subscriptions, retainers and pre-paid 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 on."
Make sure everyone knows what you plan to spend in advance, and there are no nasty surprises.
5. Understand how to spend effectively
We’ve written about this plenty of times before, but the way that most businesses pay for things is broken. Most employees don’t have easy access to company money - which is understandable.
But this means that, when it’s time for your marketing team to spend, it’s never going to be as easy as it should be.
Marketing payments usually fall into three main categories:
- Online payments for tools and digital ads. These are typically made with a company credit card.
- Invoice payments for freelancers, agencies, and consultants.
- Travel expenses and other incidentals. In most companies, employees pay upfront and then are reimbursed by the company (eventually). Very occasionally, they’re given access to a company credit card.
What makes this difficult for managers to track is that these methods aren’t connected to one another. Even if the manager or CMO personally handles every credit card payment online, that still leaves employees to file their own expense reports after attending a conference or visiting clients.
The better strategy is to have a centralized spend management system.
We won’t go into deep detail here - we’ve broken down spend management before. The major benefit is that these platforms bring all of your payment methods into one place. This lets finance teams and business team leaders see what employees spend in real time, no matter how the money is spent.
When you’re trying to manage a large budget on the go, this is invaluable.
6. Keep your budget up to date
Whereas building your annual budget can be intimidating, keeping it updated is more tedious. But it’s obviously essential.
The whole point of laying out your budget at the beginning is to give yourself a reference point as the year moves along. So each week (or perhaps month), you need to go back into that budget template and write down what you actually spent.
In some cases, this is a way to keep a lid on things. Spending on certain activities (hello, Facebook advertising) can snowball in a hurry. As soon as you start seeing clicks and leads coming in, you want to chase them with as much money as possible.
In other cases, you’ll actually have ammunition to increase spending. As Ana Gotter writes for Singlegrain, "businesses focused on scaling aggressively will likely go all in on PPC campaigns. Their ad spend may be higher, because they’re willing to invest a lot in campaigns that help them reach high-intent users actively searching for products or services like theirs. They also might be paying more to be reviewed on industry blogs or to have sponsored posts from trusted influencers."
One vital thing to remember: The easier it is to actually see all your payments in real time, the more efficient this will be. If you have to chase teammates constantly for expense reports, and check emails for software invoices, this time will quickly add up.
We’ll talk more about visibility in a moment, but this usually comes down to having the right payment methods in place.
7. Make smart decisions based on data
The final step is simply to actually use the information you have. With a close eye on your marketing expenses, you should be able to see which payments are helping, and which aren’t.
As we said above, you’ll also know when you have money to spend. This might free you up to attack bigger projects in the final quarter, or to simply double down on some of the strategies that have worked best to date.
And remember those goals we set in step 1? Now is the time to look at how you’ve spent your budget so far and ask whether each action helped bring you closer to achieving them. If not, you probably need to rethink how you’ve been spending.
The point is, by having your team’s financial information at hand, you’re better equipped to manage marketing costs effectively.
Guiding principles to manage costs
So that was a strategy in seven steps. It’s not overly complicated, but it does require a little desire and discipline on your part.
On top of these steps, here are a few overarching principles to keep in mind as you go.
Oversight is essential
If you can’t easily see what you’re spending, controlling marketing spend will be painful. Which means that marketing leaders need to ensure they have real-time visibility over their team’s payments.
This isn’t so difficult when you have discrete, one-off campaigns. Every payment is top-of-mind and you’re able to keep clear notes of all of them.
But it gets tricky if you’re dealing with a high number of ongoing online payments. You may not remember who authorized them or when they’re due. A big contract renewal to HubSpot, Marketo, or Pardot can be an unwelcome surprise.
Treat the company money like it’s your own
Handling big marketing budgets is exciting. Turning all of those pounds and dollars into paying customers is what it’s all about.
But as soon as things slow down - which is bound to happen eventually - management is going to want to know where the money goes.
According to Forbes, “you should be painfully aware of how much each strategy costs you, both in the short-term and long-term, and have a plan for variances in each strategy."
The point isn’t to pinch every penny. You’ve been given this money to spend it, after all. But you do need to know exactly how much specific campaigns cost along the way, and be ready to argue for their value when the time comes.
Don’t put all your eggs in one basket
You want a nice broad marketing mix, including lots of the spend categories we mentioned above. This doesn’t just give you different ways to find new customers, it also helps you minimize risk.
Allocate budget to a range of different platforms of campaigns, and look closely at the expected return of each. "In addition to the obvious costs of a specific platform—like the estimated PPC cost—you also want to look for “hidden” costs that will affect the ROI of each platform and how much you need to spend on it," advises Disrupted Advertising.
But this is a balancing act. You want to diversify and ensure that you’re trying different strategies without spreading your team too thin.
Be willing to change
Once you’ve found a strategy that works for you, it can be hard to do anything else. The same goes for a good agency or freelancer.
From a strictly cost-cutting perspective, this may not be ideal. It’s wonderful to have a suitable gameplan, but not if it closes you off to better options.
The goal should be to have clear processes in place that let you be flexible when you need to. A basic approach to marketing campaigns that can be easily adapted whenever you need it to be.
This ensures that you can work with new suppliers and modern platforms, without reinventing the wheel every time you launch a new campaign.
Yes, you need to be flexible and try new things. You also sometimes need to quit while you’re ahead, and kill projects altogether if they aren’t helping.
But your marketing team should have clear goals in place. And these should always be the starting point. As Opportunity Marketing writes, "please don’t invest in marketing activity just because you feel “we have to” or “that’s what you are supposed to do isn’t it?” With the growing prevalence of online channels, planning and implementing marketing campaigns on- and off-line can quickly become a minefield!
There are so many fun and exciting ways to market your products these days, and most marketers want to try them all. The most important part of your job may be rejecting promising ideas that just aren’t going to get you to your targets.
Naturally, this will save you time. It’ll also keep costs down by stopping you from heading down tangents that don’t get you anywhere.
Make tracking your whole company's spending easy
Hopefully by now you see the importance of actively managing marketing spend. Doing things on an ad hoc basis just doesn't work for most businesses. You end up dedicating more time to managing the mess than you should ever need to.
And this principal extends to every business unit. Your sales, engineering, and operations leaders aren't finance experts either. Yet they deal with significant budgets and make financial decisions on a regular basis.
As we saw above, the best way to manage this is with a spend management platform. This gives every team - not just marketing - full control over their spending and the ability to make smarter decisions.
If that sounds like what you're missing, we'd love to show you around Spendesk.
And if you forgot to grab that free budget template, here it is again: