How much should my Marketing Budget Spend be?
This is a question that is often asked by business owners and is definitely one that is always worth careful consideration
Whilst most business owners know that you have to spend money to make money (speculate to accumulate) it is always a tricky thing to make a general statement because much depends on the different conditions that are found in each individual business.
Whilst it is a given that you must invest in some form of marketing budget spend in order to raise awareness amongst potential and future customers the question still remains.
One method is to have no marketing budget spend but to throw some money at advertising when sales are slow, this method is usually adopted when there is no marketing plan done and often takes the form of some kind of offering some kind of special deal which effectively reduces your margins on the sales.
Some businesses have a form of marketing budget spend where they wait until someone approaches them with a great offer and then they advertise – “Only $2,000 to get your advert in front of our 25,000 readers”, often it is what the person who is offering these deals doesn’t tell you that is important (Actually we only print 5,000 of these items but they are all read by 5 people, we think, or we are offering this deal because we have to go to the market next week and the last lot of advertisers are not advertising this time.) So be careful when approached in this manner.
There is a school of thought that says your marketing budget spend should be 5% to 10% of revenue. The US Small Business Administration recommends a marketing budget spend of 7% to 8% of revenue for businesses with less than $5 million turnover (assuming an earnings rate of between 10% and 12%) You can see the article here
Whilst this is one approach there are some problems with, for instance what if your business is a start up or if you are launching a new product or service?
Suppose you have a turnover of $3 million, 7% of revenue gives you a marketing spend of $210,000, what if you don’t need to spend $210,000 to achieve your goals. Should you spend it anyway? I wouldn’t recommend marketing just for marketing sake.
Conversely you may have a turnover of $300,000 and 7% of revenue is not an achievable spend, but you do have $8,000 available.
The method that is most effective (as I see it) is to decide what your goals are (this will be the basis for your marketing plan for the year) and then work out the best way to achieve this with the money you have available.
Suppose your goals are not to lose any existing customers, to encourage existing customers to spend an additional dollar amount on each visit and to attract 100 new customers.
Now you need to work out how you are going to carry out each of these marketing targets i.e. which is the best way to ensure existing customer loyalty, then which is the best way to get 100 new customers, is it some form of on line marketing or would some offline marketing work better? Next you need to work out how much it is going to cost to carry out each of your targets. This amount is your marketing budget.
However, unless you have been quite conservative, your proposed spend will exceed your marketing budget, so you will have to either reduce your goals – say to 50 new clients and redo your workings.
This method of making up your marketing budget spend may take longer but is more effective than other methods seen in the business world.
If you need a bit of help in setting your marketing budget contact the guys here at Assist Marketing, they have the experience in setting budgets for marketing plans for different kinds of business.
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