Wednesday, January 1, 2014

Setting Your Business’s Marketing Budget

While marketing may not be the lifeblood of a running business, it certainly does keep an organization’s lifeblood flowing. From letting customers know about new products and services to gaining new revenue streams and continually refreshing interest, marketing and advertising have a very important role to play when it comes to staying in the black.

But how important is marketing — not in an ideological way, but in dollars and cents? How much should a business allocate to marketing, and how is a company supposed to arrive at that figure? If times are lean, and you’re more worried about how you’re supposed to afford to print postage, should you still pump money into advertising, or is it wiser to let your marketing dollars fall to the wayside? Here is a quick look at how to set and spend a marketing budget, as well as a pitch for why you need to do it even when you think you can’t afford it.

How to Set a Marketing Budget

A general rule of thumb for most businesses is that they should allocate and spend about 5 percent of their operating budget on marketing and advertising in order to maintain their current level of business. If you want to grow your market share or you have a new product to introduce, however, that figure should jump to at least 8 percent, because pushing past the inertia of what people already know about you can take some added effort.

Beyond those general rules, here are four other methods you can employ when devising your marketing financial plan:

  • Utilize a fixed percentage of sales. Take last year’s gross sales or the average sales from the last few years, and allocate a percentage based on those numbers. Five percent is a good amount, but some businesses only spend around 2 percent. The advantages of this technique are that it’s stable and doesn’t try to predict the future, but focusing too much on the past can keep you from being aggressive, and sales are not always directly related to advertising alone, which means your figures may not totally line up.
  • Keep up with the Joneses. This method employs doing what your competitors are doing. Whatever the industry marketing expenditures average is, adopt it. It’s easy and predictable, but looking at everyone around you can keep you from effectively increasing your market share.
  • Take a task-based approach. Set specific marketing goals, and outline the tasks you’ll have to do to reach them. Then, determine your budget based on how much it will cost to perform those tasks. This method is accurate, but if it fails, it’s probably going to be costly.
  • Go all in. If you have a strong stomach for risk, and you want your business to grow quickly, set aside a minimum amount of money with which to do business and put the rest in your marketing budget. Because it’s aggressive, this type of marketing can gain leaps and bounds over a more passive approach, but it’s risky. You’re liable to spend yourself out of business.

How to Spend a Marketing Budget

In order to properly spend the money you’ve set aside on marketing, you need to have a plan. From utilizing social media to television, direct mail and other campaigns, your money needs to be spent with wisdom and intention. Outline the avenues you’ll use, and then, get started. Once you know where your money is going, keep track of whether the expenditures are actually meeting your goals. If you need to adjust or change, do so. A marketing plan needn’t be fixed. Knowing whether or not your money is achieving your marketing goals is much more important than sticking to your plan or sticking to your budget. Compare quarters and campaigns. Analyze sales data and expenditures. Be patient, and be open to things that do and don’t work, and above all, make sure that your plan and its execution are in keeping with who you are and hope to be as a business.

Regardless of the type of business you run, you need people to know about the goods and services you provide so they’re able to purchase them. Even in lean times, you need to treat your marketing budget as a non-negotiable expense, because without awareness, you won’t have customers. Staying in business, remaining competitive, gaining market share — a good marketing plan with a solid and reliable budget will help you achieve these things and more, but you have to do it consistently.

About the Author: Jerry Jacobs is a contributing blogger and freelance marketer.

1 comment:

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