How Much Should Your Business Budget for Marketing?
Answering the question of how much a business should plan to spend on their marketing can be tricky. The needs and resources of every business are unique, so no one standard answer, like “every business should spend 14% on marketing” exists.
This lack of a standard or rule-of-thumb when it comes to marketing budgets is also why so many small businesses avoid addressing the matter altogether. But since smart budgeting and marketing are so critical to a company’s success, let’s try to demystify this process.
Businesses looking to maintain their market share can reasonably be expected to spend at least 5% of total revenue on marketing. But a business looking to increase may spend anywhere from 10 up to 20 and even 50% of overall revenue. All of this can make trying to set a marketing budget seem like you’re throwing darts at a board.
Before determining how much you’re going to spend on a marketing budget, ask yourself these questions:
What goals do you have for your marketing?
Knowing whether the goal of your marketing will be to bring in more leads, increased sales, or whether you just want to build brand awareness is key. Your goals will determine where you concentrate your marketing efforts. SEO and social media marketing differ from radio and television in a number of ways – cost being the primary factor. Radio and television are far more expensive.
What are you currently spending on marketing, and where are you spending it?
Knowing where you currently stand regarding spending gives you a solid starting point for developing a future budget. If you determine that you are currently spending X amount on Y efforts, the next step is to ask yourself if that money is being well spent, and whether you plan to continue those efforts.
How quickly do you intend to grow your business?
If you have any hopes of doubling or tripling the growth rate of your business in the short term, that is going to require a more significant investment than a business that is content to maintain their current customer base and add modest growth of 5-10%.
Are you willing to take risks and do testing?
There is an old saying that is attributed to the marketing pioneer, John Wanamaker: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” This adage supports the belief that marketing can be risky – you aren’t guaranteed a return on your investment. It also makes clear the need to continually conduct tests.
You shouldn’t plan to spend your entire marketing budget on a single campaign. Even if you’ve done your homework and conducted all the market research necessary, that would be folly. Campaigns can – and do – flop. Frequently. Even with excellent tools like focus groups, there is no way to be sure how a market is going to react.
You want to leave yourself in a good position if you find that your marketing in some areas isn’t bringing in a good ROI. By the same token, taking risks can pay off big. Try several things on a trial basis and the one or two that outperform should comprise the bulk of your budget spending.
Have a good strategy in place for how you plan to define success in marketing. Will you be pleased if your efforts bring in 10 new qualified leads over a certain period? Or do you need to see sales increase by 6% or more before you’ll declare success?
Keep in mind that while some marketing methods can see fast results, others can take longer to develop. You may need to adjust your expectations to meet reality.
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Author: Kelly Smith works at CourseFinder. She’s interested in new online marketing tools and branding strategies. She’s keen on work-life balance and healthy work environments.