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How to Set a Marketing Budget that Fits your Business Goals and Provides a High Return on Investment
by Caron_Beesley, Community Moderator
- Created: June 4, 2012, 7:47 am
Whether you run a small business or a multi-million dollar corporation, marketing is essential to your profitability and growth. Yet many small businesses don’t allocate enough money to marketing or, worse, spend it haphazardly.
I recently got to know a business that was investing heavily in developing a hip, niche product to add to its already very cool product line. Seemed like a sure winner. However, it quickly became apparent that product development had occurred in a silo, while sales and marketing were off doing their own thing. The result? The week before launch, the business found itself with a fantastic product on its hands, but lacked a go-to-market plan or promotional material for the new product.
In a panic, an expensive PR firm, social media strategist, and marketing consultant were all pulled in to help drive awareness of the new product. Within a few weeks, the budget had run dry and the business had to quickly revisit its overall operational and sales and marketing strategy, while moving forward on a shoestring.
Products and services don’t sell themselves. By ignoring marketing until it’s too late, many small businesses risk hitting a brick wall and, quite possibly, failing. A hip and trendy product line shouldn’t rely solely on ongoing product investment and word of mouth.
But how much money should you allocate to marketing? And how can you spend it wisely? Here are some tips that can help you do both:
How to Calculate your Marketing Budget
Many businesses allocate a percentage of actual or projected gross revenues – usually between 2-3 percent for run-rate marketing and up to 3-5 percent for start-up marketing. But the allocation actually depends on several factors: the industry you’re in, the size of your business, and its growth stage. For example, during the early brand building years retail businesses spend much more than other businesses on marketing – up to 20 percent of sales.
As a general rule, small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing. This budget should be split between 1) brand development costs (which includes all the channels you use to promote your brand such as your website, blogs, sales collateral, etc.), and 2) the costs of promoting your business (campaigns, advertising, events, etc.).
This percentage also assumes you have margins in the range of 10-12 percent (after you’ve covered your other expenses, including marketing).
If your margins are lower than this, then you might consider eating more of the costs of doing business by lowering your overall margins and allocating additional spending to marketing. It’s a tough call, but your marketing budget should never be based on just what’s left over once all your other business expenses are covered.
Spending Your Budget Wisely
Knowing how much you have to spend on marketing is critical; even more critical is how you spend it.
This means having a plan. Your small business marketing budget should be a component of your marketing plan, outlining the costs of how you are going to achieve your marketing goals within a certain timeframe.
To get a sense of what your plan should include, take a look at this article from SBA guest blogger, Rieva Lesonsky: Does Your Business Have a Marketing Plan? Also check out How to Cut Your Marketing Budget and Build Your Brand Profitably.
Revisit Your Plans Often and Track ROI
Once you have developed your marketing plan and budget, remember that it needn't be fixed and inflexible. There may be times when you need to throw in another unplanned campaign or event. At the end of the day, knowing whether it your spending is actually helping you achieve your marketing goals is more important than sticking to your budget.
Have a plan in place for measuring your spending and the impact that activities have on your bottom line. Compare tactics, analyze seasonal effects – was one quarter more profitable than another? Why? Above all, have patience and follow through on all your marketing efforts across the organization – it takes a village to build and grow a brand.
Some tactics are hard to measure, like the efficacy of print collateral, but you need to consider the impact of not having these branding staples in your tool kit before you reign in your graphic design and print funds.
Marketing plans should be maintained on an annual basis at a minimum, and revisited if you launch a new product/service, or if the market landscape changes.
Helpful Resources
- 7 Steps to Sowing the Seeds of Successful Marketing
- Marketing to Customers in a Post-Recession Economy
- Tips for Giving your Marketing a Check-Up
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Comments
SeattleCPA | Window Shopper | 7/27/2012 - 10:02 am
related to your point on tracking ROI: Accounting programs like QuickBooks
typically have a 'customer type" field the software will collect and store.
People often just ignore field, but if a business owner compulsively asks new
customers where they learned about the business--website, referral, newspaper
ad, yellow pages, direct mail flier, etc--one can sometimes gain seriously
interesting insights into the effectiveness of one's various marketing
gambits.
Oh-oh, sorry for the ramble. I really started this comment as a way to
underline Caron's excellent point about needing to track the ROI and how that
can let you make better decisions. Thanks Caron!
sbarris | Window Shopper | 6/10/2012 - 11:09 am
Please keep on sharing your ideas with the world.
And, as the middle of the year quickly approaches, if you are a business
owner, you're well into your 2012 marketing plann, or at least getting some
of your marketing ideas done.
Believe me, if you look at other business owners who are successful, most all
of them are successful because of their marketing plans.
Besides, planning you're marketing strategies and putting them in a calendar
before the new year starts is especially important to your business's
success.
Because, when you can create a marketing plan & calendar, you will have a
game plan to follow right from the beginning of the year, and you are much
less likely to be trying to come up with marketing tactics at the last
minute.
For example: If you've ever had an ad rep come to you looking for your Black
Friday ad two weeks prior to Black Friday, and you have to quickly slap
something together just to make the deadline, then you know what a pain it is
not having your marketing plans laid out beforehand.
It turns out, if you lay out your marketing plan and note all the reasons why
you want to promote your business as well as the deadlines for each scheduled
item, you can add work schedules to your marketing calendar to make sure the
proper amount of time goes into preparing your marketing promotions.
In truth, when preparing your marketing budget and it's not factored into
your plan, typically many or your preparations are hurried and your marketing
campaigns can't do the best job of getting your message out.
Moreover, by budgeting and planning your marketing strategies it will be much
easier for you to budget your marketing expenses for the year.
Remember, when you know what marketing tactics you will be using, you can
come up with realistic ideas of how much each promotion will cost your
business. This allows you to set aside an appropriate marketing budget to
cover the costs you will incur throughout the year.
Most importantly, your marketing ideas are important and when you plan for
them on a calendar, you actually make them important and more likely to be
followed through on.
Quite simply, without a marketing budget, plan and calendar, it can be very
easy to let your marketing ideas slip through the cracks. In the big picture,
leaving out even a small marketing idea can be costly to your business.
Reality is, having a marketing budget and plan is just like planning your
vacation. It is your road map to keep you going down the path you want to
travel within your travel budget.
Dare something great,
Sandy Barris
Fast Marketing Plan.com
http://www.FastMarketingPlan.com
playandlearn670 | Window Shopper | 6/6/2012 - 2:49 am
you've put plentiful planning into it and I appreciate that. I will bookmark
your blog and come back again soon. Thanks!
tmerrill | Window Shopper | 6/4/2012 - 8:41 am
revenue I should be putting into marketing. I simply came up with an idea and
funded it. But that might not always be possible. I think I will start a
budget and marketing plan this month, following the 7-8% rule at first. Thank
you.
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