How much to spend on marketing and advertising is a question all businesses ask at one point or another. How much should you spend, and how much can you truly afford to spend? This is an important question that should be answered and not ignored with hopes that it will go away.
So, in hopes that business owners will take this question seriously, I am here today to talk a little about the most popular ways to figure out how much to spend on marketing.
The Traditional Way
The most traditional way to approach this question is to spend a percentage of your revenue. You can approach this method by looking at what you plan to make in sales this year and then multiply that by a percentage to reach your business’ marketing budget for the upcoming year. On average, business who take this approach allocates anywhere from 8 -12% of their revenue.
So for example, say you estimate your business will bring in $1,000,000 in revenue, and you want to dedicate 8% of your revenue to marketing and advertising. So you would multiply $1,000,000 x 8%, which would give you a budget of $80,000 for the year.
Other things to take into account when determining the percentage of revenue that you should dedicate to marketing and advertising are:
- Your business’ industry
- Competitive landscape
- Competitor’s spend
- Market saturation
- Target audience
This method works because it is an easy and understandable answer, but be careful because it’s not 100% accurate. Small or new businesses need to be especially careful because if you don’t have much revenue, the whole equation can breakdown. Also when calculating this out keep your margins in mind!
Everything You Can Afford
So, we know that often times it’s hard to calculate future sales, especially on the local/small business side. So this is definitely one of the most popular methods for local and small business. Essentially the idea is to set money aside that is necessary to run the business and then invest the rest into marketing to build popularity and awareness.
The overall objective of this method is to help grow your business quickly, and establish yourself in the marketplace. The upside of this method in theory is that it allows for growing your business fast. This aggressive, and risky, method should be well thought out and planned because you are essentially putting all your eggs in one basket.
Just A Bit More Then the Competition
This method is pretty straight forward, find out what the competition is spending than spend just a tad bit more then them.
This method offers a reasonably good way to estimates how much you should be spending in the marketplace (especially if you are new to marketing and advertising). The biggest issue with this method is that it is often hard to find out exactly how much your competitors are spending, so your numbers are not always as accurate as you might like.
Desired Customer Growth
This is a great method if you have a specific number of new customers you want to attract. Essentially the equation for this type of budget planning is: the cost of a new customer multiplied by the amount of new customers you want to acquire, gives you the total amount you need to spend.
This is a great and very accurate way to forecast the amount you will need to spend to reach your objective. Keep in mind though that in order for this method to be successful you need to know exactly how much it cost to acquire a new customer.
Every industry has projections of how much a business will need to spend to be successful. Seek out these averages and refine them to your market, business and situation.
This method is great because it is very accurate and specific to your type of business. Just be careful because often times this average can include amounts from larger organizations, so it can be overestimated for a small business.
Spend Nothing and Try to Market for Free
Thanks to digital media this is now a doable method. Build your social media networks, or increase your customer database. All these are simple methods that can really help boost your sales.
But remember because it is free, you will more then likely end up spending a lot of time managing all these methods- so in essence it isn’t free.
This might be one of the best methods for local and small businesses that are running on very limited resources. This method is more general and revolves around setting objectives, planning tasks required to complete the objectives and then estimating all the costs for the task required.
Overall this method works best if you have very specific objectives and tasks that you want to accomplish. The only set back is that you need to have a solid understanding of what is important and what you need to accomplish.
Overall, trying to project a marketing budget can be very difficult to plan out, especially if you are a small business. What local and small business owners need to keep in mind is that going through the process and making a budget gives you a starting point. From there, you can begin to make decisions about the rest of your marketing strategies and how to move forward.