Often, small and midsize companies have either a vague “Sales & Marketing” budget or no marketing budget at all. But even if a company spends relatively little on marketing, it makes good sense to have an annual budget.

Why? Because without a financial context, it’s difficult to evaluate and implement new initiatives. Decisions quickly take on an “either-or” character. For example–

Business owner: “We need an e-commerce Web site. I want it to do this, that, and the other thing. How much will it cost?”

Marketing manager: “$10,000-$20,000.”

Business owner: “That much? Never mind. Let’s reprint our brochures.”

Of course, I’m exaggerating, but in reality, such discussions do get short-circuited rather quickly because of sticker-shock. But with an annual budget, you can talk about a timetable for developing the Web site. If $10,000 is unrealistic for year one, $3,300 over three years might be very comfortable and still get the job done in an adequate time frame.

Also, a budget enables you to have an informed discussion about ROI. Most companies will not recoup $10,000 in year one of an e-commerce site. But break projected revenues out over three or four years, and the picture may look pretty appealing. Not all marketing projects can be quantified, but to the extent they can, they should be.

Finally, a budget makes it possible to weigh one marketing project versus another. I see a lot of smaller businesses start up a newsletter or a blog because “everybody is doing it”, or “this looks really cool!”. Following your instincts is good. But even better is to confirm your decision by going through this exercise:

“We have $20,000 to spend this year. A newsletter costs x. We think the payback is y. How does that compare with reprinting brochures?”

If you only have a couple options, perhaps no need for a formal budget. But what if you have six or seven ideas worth considering?

Bottom line: don’t let yourself be frozen into inaction because you have no context for decision-making. A budget can be your guide to building a productive marketing capability.