The money you spend on marketing is an investment in your business and your future. It has been proven many times over the years that companies and sales people who don't have a budget for marketing and advertising run into financial problems because they are generating new sales or leads. (Before I learned to set a budget I was always scrambling to pay for any advertising I wanted to do.)
Many experts say that 3% to 10% of every sale should be set aside for marketing and advertising. The biggest drawback to this method is that if sales drop (for any reason) then your marketing budget drops as well. Using this model could work if you based your budget on your sales target instead of actual sales.
Another method of determining your marketing budget is to base your spending on last year’s marketing budget and add extra money for growth based on the expected increase in business this year. This method is okay but doesn’t let you measure how effective your marketing plan is because there’s no direct link to what you spend to performance. Not knowing how effective your marketing is makes it difficult to calculate your marketing ROI (return on investment.)
The third most common method of setting your marketing budget is to estimate what your competitors spend and then copy them. The problem with budgeting like this is that you will be running a “me too” marketing campaign. How will you be able to calculate your ROI? Will you overlook better marketing opportunities?
The best way to determine your marketing budget?
Using your customer profile determine who your best customers are and learn about how they found you, why they chose you and what they have in common in the way of interests, shopping, cars they drive and income. Then find an affordable way to reach them, educate them and become their expert source for information about your products or services. Measure the results every week or month and if the increase in business doesn’t balance with your spending review your marketing to make sure your still focused on your target market.
Some interesting marketing information:
- the leading pharmaceutical companies spend around 20% of sales on advertising
- the automotive industry spends less than 1% of sales on marketing
- an average for fast-moving consumer goods markets is around 8-10% of sales
- a 2003 U.S. bank report found that poor marketing was one of the 3 largest contributors to business failure