How to Establish a Marketing Budget
To the multitudes that are following my blog, please accept my apology for not posting more frequently. Being a small consulting firm, client priorities generally take priority and the good news is that I have been quite busy in recent months. I leave soon for an international trip and promise that I will make a post when I return and be more regular in the future.
A common question among business owners is how much should they be spending on marketing. The correct answer is…it depends. As many businesses are in the process of building plans and setting budgets for the coming year, this topic seems to come up more often. There are many factors that can be considered in establishing the right amount to spend on marketing and advertising. Here are a few items to consider:
Spending ratios are obviously influenced by the business model for the industry. High margin businesses like beverages and software can afford to spend a greater amount of their revenue on advertising than lower margin business like electronics or banking.
“Fixed” Program Some business will find that their business requires a “minimum” level of marketing expenditures to be competitive. For example, if a business finds that they need to attend a certain number of industry trade shows or advertise regularly in certain publications, they will find that their budget is driven by a “fixed” set of expenditures which will set the budget.
Growth Goals A company that has aggressive goals for increasing revenues should consider how much marketing budget would be generated by the higher revenue goal. Establishing the marketing budget as a ratio of the revenue goal is another approach. Reducing marketing spending is likely to reduce the acquisition of new customers or even jeopardize the company’s current market share. Growing quickly also requires increased working capital for inventory, staffing and accounts receivable so the prospect of increasing marketing spending can often times be challenging for high growth companies. Companies that have plans to growth rapidly generally need to spend a higher percent of sales to achieve that goal.
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