It is imperative that a business proactively set a marketing budget for their business. The reason is simple, if you don’t set a budget and make a plan, you will instead make a series of small, and at the time, inconsequential choices to promote your business that are both costly and ineffective. At the end of the year, you will have spent a lot more and gained a lot less than you otherwise would have, if you had a plan and a marketing budget.
Getting your hands around a company’s marketing expenses isn’t easy. And that’s only the first step. The second step is determining how much you intend to spend on your marketing budget during the course of the year. And the third step is making the best choices within the marketing budget to leverage against each other, giving you a 1 + 1 = 3 effect.
Current Marketing Budget
First things first, you need to know what you’re spending on your marketing expenses during the course of the year. To really get your hands around the complete picture, you should consider expenses in the following areas:
- Media Purchases (money spent buying time/space.)
- Media Production (money spent producing creative for the Media Purchase.)
- Directory Listings (money spent inserting your business in online and offline/paper directories.)
- Corporate Identity (money spent on creating your official business identity.)
- Associations/Organizations (money spent on your professional and civic affiliations.)
- Charitable Contributions (money spent on visible charitable sponsorships)
- Marketing Consultants (money spent with consultants/experts on marketing.)
It’s hard to think comprehensively about all the different aspects of marketing that are associated with each of these areas. To that end, we have developed a marketing budget template that we share with clients to help them completely evaluate their current marketing expense level.
This template is available to subscribers of the Finding Brand Blog (look in the right column of the email you are reading this post on for the download) — if you’re not one, it’s OK, you can subscribe and I’ll send you the Marketing Budget Template instantly and FREE of charge. As a member of the Finding Brand community, you’ll receive all the Finding Brand posts in your inbox, so you’ll never miss a post. And of course, you’ll also receive subscriber-only benefits (like this one.)
Determine What Your Marketing Budget Should Be
The question, “what should be spent on marketing?” is a tough one. And, there is no easy answer. However there are some good guidelines out there. Most commonly the marketing budget is expressed as a percentage of GROSS Income (receipts and gains from all sources less cost of goods sold). The exact percentage that should be spent varies, usually between 3% and 15%. But where on that marketing budget percentage your business should fall is a function of a number of conditions. And this is where it gets a little subjective. Because the marketing budget needs to be set according to a wide variety of factors including: competition, brand recognition, your town/city, number of locations, number of employees, whether you are a B2B or B2C business, selling a service, commodity, or luxury good.
The Houston Chronicle reported that, “The U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales and your net profit margin — after all expenses — is in the 10 percent to 12 percent range. Some marketing experts advise that start-up and small businesses usually allocate between 2 and 3 percent of revenue for marketing and advertising, and up to 20 percent if you’re in a competitive industry. Still other marketing experts counsel a range between 1 percent and 10 percent, and even more depending on how long you’ve been in business, competitive activity and what you can afford.”
7 percent is an appropriate place to start for most small to mid-sized businesses. From there, you’ll need to adjust upward for infrequency of purchase. The less often someone makes the buying decision for your specific product or service, the more you have to spend on marketing and advertising. If you have a business that employs less than 100 employees, you will also have to adjust your percentage upward more significantly to compensate for the smaller impact your business has on your community (see the Marketing Sherpa graph to the right for more information.)
We usually see serious small businesses spending 7-12% of their gross income on their marketing budgets annually. Of course, this is often tempered by what the business can afford to spend on their marketing, and as you’ll see on the Marketing Budget Template – it’s not all hard costs, we should account for soft costs (time) in our Marketing Budget.
Leveraging Your Marketing Budget
Once you have determined what you are spending, and what you should be spending, it is time to evaluate where the money is being spent and how it could be more effectively spent. First you have to decide what marketing dollars are helping, and which are stagnating (eliminate those that are stagnating). Be ruthless here, and evaluate whether what you are deploying your marketing budget in strategic/thoughtful campaigns or fits and starts (eliminate the fits and starts in favor of strategy). This will help you to spend smarter and to make better use of your money, time, and energy.
Help with Your Marketing Budget Template
If you need help and ideas about how to build consistency, please check out my blog on the topic. Of course, this is also where a professional marketing consultant can help, and I’d be glad to lend some insights and guidance, please schedule a FREE consultation with me to discuss your unique situation.