I often get asked, How much should I spend on Marketing?
Businesses commonly ask how much they should budget for marketing each year. Unfortunately, there’s no easy answer.
Yes, there are rules of thumb, but there are also numerous attenuating factors for each company to consider. The amount a business should budget varies based on its tenure in the marketplace (and if it has multiple products, it may have to allocate its marketing spend differently based on each product’s market status) and its industry, among other considerations. For example, industrial, business-to-business corporations may spend less than 1 percent of their net revenue (total sales) on marketing established products, yet many consumer products companies spend 50 percent or more of their net revenue on launching new offerings.
Marketing spend also depends on how much and how quickly you want to grow. The old adage is true: You have to spend money to make money.
Rules of Thumb
As a general rule of thumb, companies should spend around 5 percent of their total revenue on marketing to maintain their current position. Companies looking to grow or gain greater market share should budget a higher percentage—usually around 10 percent.
This percentage, of course, will vary by company and industry. For example, companies in highly competitive industries—such as retail, consumer products, and pharmaceuticals—often spend 20 to 50 percent of their net revenue on marketing.
Using the general rules of thumb, calculate your company’s ideal marketing budget below, I like to use forecasted revenue figures, If your expecting growth over the next 12 months then use this formula on what your potential is based on last years revenue:
Caveat: These rules of thumb are based on businesses that average at least six-figure revenue numbers. Companies with smaller margins should allocate a percentage of their net revenue based on estimates of what competitors are spending. (And yes, they will have to guesstimate roughly at best. Competitors rarely share that information openly.)
These numbers will be out of the comfort zone for a number of businesses. Keep in mind that the total budget calculated by these rules of thumb covers all marketing expenses: The cost of marketing staff and their overhead as well as the cost of printing, advertising, and outsourced talent is included.
Many businesses have failed because they were unwilling to properly budget for marketing activity. Companies can grow to a certain point via word of mouth, but after they hit a certain size threshold, they will stall.
Other Considerations
Additional factors to consider when developing a marketing budget include new product/service launches, new market entries, and mergers and acquisitions. The percent-of-revenue calculation should be adjusted to account for these factors.
For example, businesses on average should spend 10 percent of their gross sales for the year on marketing each new product or service, or 20 percent of the new service’s sales and revenue target. And consumer products and services companies should always spend a higher percentage than business-to-business companies.
Expected Return
Companies may wonder how much they can expect to receive in return for their marketing investment, and how much an increased investment will garner them in increased return.
It’s a fair question. Yet again, there’s no easy answer. Some marketing tactics require a longer term than others for effective return. A marketing strategy focused on branding, for example, will need a longer period to see results than a lead-generation strategy. In general, most marketing activity snowballs over time, delivering exponentially increasing return the longer the tactics are underway in a coordinated, diversified fashion that covers the right audiences with the right messages.
Marketing should not push forward without success measures. Metrics should consider the marketing strategy—which hopefully aligns with the business strategy—and the different tactics involved in carrying it out. Measures can be global, across multiple tactics, and specific to each tactic. Yet a company should depend heavily on its marketing strategy and the tactics it employs to execute its strategy in defining all success metrics.
More related articles at:
http://marketing.about.com/od/marketingmethods/qt/marketingbudget.htm
http://www.inc.com/guides/2010/09/how-to-build-your-marketing-budget.html
http://www.imageworkscreative.com/blog/how-determine-set-what-your-marketing-budget-should-be/index.html
Yes, there are rules of thumb, but there are also numerous attenuating factors for each company to consider. The amount a business should budget varies based on its tenure in the marketplace (and if it has multiple products, it may have to allocate its marketing spend differently based on each product’s market status) and its industry, among other considerations. For example, industrial, business-to-business corporations may spend less than 1 percent of their net revenue (total sales) on marketing established products, yet many consumer products companies spend 50 percent or more of their net revenue on launching new offerings.
Marketing spend also depends on how much and how quickly you want to grow. The old adage is true: You have to spend money to make money.
Rules of Thumb
As a general rule of thumb, companies should spend around 5 percent of their total revenue on marketing to maintain their current position. Companies looking to grow or gain greater market share should budget a higher percentage—usually around 10 percent.
This percentage, of course, will vary by company and industry. For example, companies in highly competitive industries—such as retail, consumer products, and pharmaceuticals—often spend 20 to 50 percent of their net revenue on marketing.
Using the general rules of thumb, calculate your company’s ideal marketing budget below, I like to use forecasted revenue figures, If your expecting growth over the next 12 months then use this formula on what your potential is based on last years revenue:
- Total Revenue x 5% = Marketing budget required to maintain current awareness and visibility
- Total Revenue x 10% = Marketing budget required to grow and gain market share
- Total Revenue x 20% = Marketing budget required for aggressive growth or new product launch (forecasted revenue must be used for new products)
Caveat: These rules of thumb are based on businesses that average at least six-figure revenue numbers. Companies with smaller margins should allocate a percentage of their net revenue based on estimates of what competitors are spending. (And yes, they will have to guesstimate roughly at best. Competitors rarely share that information openly.)
These numbers will be out of the comfort zone for a number of businesses. Keep in mind that the total budget calculated by these rules of thumb covers all marketing expenses: The cost of marketing staff and their overhead as well as the cost of printing, advertising, and outsourced talent is included.
Many businesses have failed because they were unwilling to properly budget for marketing activity. Companies can grow to a certain point via word of mouth, but after they hit a certain size threshold, they will stall.
Other Considerations
Additional factors to consider when developing a marketing budget include new product/service launches, new market entries, and mergers and acquisitions. The percent-of-revenue calculation should be adjusted to account for these factors.
For example, businesses on average should spend 10 percent of their gross sales for the year on marketing each new product or service, or 20 percent of the new service’s sales and revenue target. And consumer products and services companies should always spend a higher percentage than business-to-business companies.
Expected Return
Companies may wonder how much they can expect to receive in return for their marketing investment, and how much an increased investment will garner them in increased return.
It’s a fair question. Yet again, there’s no easy answer. Some marketing tactics require a longer term than others for effective return. A marketing strategy focused on branding, for example, will need a longer period to see results than a lead-generation strategy. In general, most marketing activity snowballs over time, delivering exponentially increasing return the longer the tactics are underway in a coordinated, diversified fashion that covers the right audiences with the right messages.
Marketing should not push forward without success measures. Metrics should consider the marketing strategy—which hopefully aligns with the business strategy—and the different tactics involved in carrying it out. Measures can be global, across multiple tactics, and specific to each tactic. Yet a company should depend heavily on its marketing strategy and the tactics it employs to execute its strategy in defining all success metrics.
More related articles at:
http://marketing.about.com/od/marketingmethods/qt/marketingbudget.htm
http://www.inc.com/guides/2010/09/how-to-build-your-marketing-budget.html
http://www.imageworkscreative.com/blog/how-determine-set-what-your-marketing-budget-should-be/index.html
Developing a Marketing Plan
Marketing takes time, money, and lots of preparation. One of the best ways to prepare yourself is to develop a solid marketing plan. A strong marketing plan will ensure you’re not only sticking to your schedule, but that you’re spending your marketing funds wisely and appropriately.
What can a Marketing Plan do for Your Small Business?
A marketing plan includes everything from understanding your target market and your competitive position in that market, to how you intend to reach that market (your tactics) and differentiate yourself from your competition in order to make a sale.
Your small business marketing budget should be a component of your marketing plan. Essentially, it will outline the costs of how you are going to achieve your marketing goals within a certain timeframe.
Bend Your Budget When Necessary and Keep an Eye on ROI
Once you have developed your marketing budget, it doesn’t mean that it’s set in stone. There may be times when you need to throw in another unplanned marketing tactic -- such as hosting an event or creating a newspaper ad -- to help you reach your market more effectively.
Ultimately, it’s more important to determine whether sticking to your budget is helping you achieve your marketing goals and bringing you a return on investment (ROI) than to adhere to a rigid and fixed budget.
That's why it's important to include a plan for measuring your spend. Consider what impact certain marketing activities have had on your revenues during a fixed period, such as a business quarter, compared to another time period when you focused your efforts on other tactics. Consider the tactics that worked as well as those that didn’t work. You don't have to cut the tactics that didn't work, but you should assess whether you need to give them more time to work or whether the funds are best redirected elsewhere.
Granted, some tactics are hard to measure -- such as the efficacy of print collateral (brochures, sales sheets, etc.), but you need to consider the impact of not having these branding staples in your market tool kit before you reign in your graphic design and print funds.
Marketing plans should be maintained on an annual basis, at a minimum. But if you launch a new product or service, take time to revisit your original plan or develop a separate campaign plan that you can add to your main plan as an addendum.
At the end of the day, the time spent developing your marketing plan, is time well spent because it defines how you connect with your customers. And that's an investment worth making.
If you need further help developing a marketing plan call Christian on 0408 322176 or Email [email protected] to arrange a appointment where we can discuss how I can best help your business.
What can a Marketing Plan do for Your Small Business?
A marketing plan includes everything from understanding your target market and your competitive position in that market, to how you intend to reach that market (your tactics) and differentiate yourself from your competition in order to make a sale.
Your small business marketing budget should be a component of your marketing plan. Essentially, it will outline the costs of how you are going to achieve your marketing goals within a certain timeframe.
Bend Your Budget When Necessary and Keep an Eye on ROI
Once you have developed your marketing budget, it doesn’t mean that it’s set in stone. There may be times when you need to throw in another unplanned marketing tactic -- such as hosting an event or creating a newspaper ad -- to help you reach your market more effectively.
Ultimately, it’s more important to determine whether sticking to your budget is helping you achieve your marketing goals and bringing you a return on investment (ROI) than to adhere to a rigid and fixed budget.
That's why it's important to include a plan for measuring your spend. Consider what impact certain marketing activities have had on your revenues during a fixed period, such as a business quarter, compared to another time period when you focused your efforts on other tactics. Consider the tactics that worked as well as those that didn’t work. You don't have to cut the tactics that didn't work, but you should assess whether you need to give them more time to work or whether the funds are best redirected elsewhere.
Granted, some tactics are hard to measure -- such as the efficacy of print collateral (brochures, sales sheets, etc.), but you need to consider the impact of not having these branding staples in your market tool kit before you reign in your graphic design and print funds.
Marketing plans should be maintained on an annual basis, at a minimum. But if you launch a new product or service, take time to revisit your original plan or develop a separate campaign plan that you can add to your main plan as an addendum.
At the end of the day, the time spent developing your marketing plan, is time well spent because it defines how you connect with your customers. And that's an investment worth making.
If you need further help developing a marketing plan call Christian on 0408 322176 or Email [email protected] to arrange a appointment where we can discuss how I can best help your business.
