How To Set A Marketing Budget For Business

How To Set a Marketing Budget for your Small Business?

People often ask us, “How much should we spend on marketing?”

It’s one of the most important questions you can ask if you want to maintain a healthy revenue growth for your small or medium business. Most companies under-spend on marketing, thinking they’re saving money. This quite simply isn’t true. You’ve heard it before, but it bears repeating: you have to spend money to make money. Your marketing efforts have a direct bearing on your revenue—it’s no good being penny wise but pound foolish. The trick is to spend wisely. A tailored marketing plan that will fulfill your company’s goals will recoup far more in increased revenue than you’d have saved by not investing in it.

So how much should you budget for such a thing?

The answer varies by industry and business size. There isn’t any one-size-fits-all figure that every successful company sticks to. Your marketing budget will vary depending on what industry you’re in, how big you are, how much you want to grow, and how fast.

However. There is a healthy range within which your marketing budget should fall. Both SCORE — the counselors to America’s small businesses—and the United States Small Business Administration (SBA) put the range for a proper marketing budget at between 2% and 10% of gross sales. That said, they also note that for B2C, retail and pharmaceuticals companies this figure can exceed 20%—especially during peak brand-building years.

Budget-setting guidelines
The development or refinement of your brand, along with the channels used to promote it. This includes relatively one-off investments like logos, websites, blogs, e-mail campaigns, sales presentations, brochures, ads, and so on.

The ongoing expense of promoting and advertising your brand to your customer base and your prospects.
Although the exact percentage of revenue you’ll dedicate to a marketing budget is determined by your industry and other factors, here’s a table we’ve put together based on our own experience, and several other good sources:
Revenue Marketing Budget
Less than $5 million 7–8%
$5–10 million 6–7%
$10–50 million 5–6%
$50–100 million 4–5%
More than $100 million 1–3%
It’s important to adjust for industry!

Every industry is different, so companies that sell to specific government branches or have ultra-specialized niches may be able to deduct 1–2% from the above figures. If your company is B2B or B2C, on the other hand, you may need to raise your budget by 1–3% to see solid results. Retail and pharmaceuticals lead the spending, with many of these companies devoting more than 20% of their net sales to marketing.

The overall average is reported to be 4–6%. For many companies, though, we think that’s a shade on the low side.

Your own unique circumstances may well merit an increase or reduction in your marketing budget. You’re very welcome to contact us if you’d like advice; and the SBA has some great resources online as well at: 
http://www.sba.gov/smallbusinessplanner/index.html. 

"We’ll just use what’s left over…"
Often, small businesses estimate their sales revenue, cost-of-goods, overhead and salaries, and then gross profit. Anything left is considered available funds for marketing support. That’s not such a good idea. … If you are the new competitor in the marketplace, you will have to spend more aggressively to establish your market share objective.

This is SCORE’s advice, and we couldn’t have put it better ourselves. Deciding what to spend on marketing based on what’s left over after everything else is a sure way to steer your business onto the rocks. If your marketing budget is an afterthought, then your marketing itself is an afterthought…and you’re going to have a very hard time building your revenue stream. Can I grow my company organically?

Sure you can. We call this organic growth, and it’s how nearly every business starts off. Remember washing cars or mowing lawns for a few bucks? Next thing you know, your neighbor wants it done. That neighbor refers you to another neighbor and so on. Many businesses grow their clientele like this: by word of mouth alone. And you can be very successful doing this—up to a point. But you’ll usually hit a brick wall where you just can’t grow any further on referrals and repeat business alone.

That’s when you have to get new customers—and for that you need a solid branding campaign. If you’re relying on partial branding, or organic growth alone, you will lose revenue in the sense that a certain percentage of people who would buy from you don’t know you exist. Either that, or they didn’t have their interest piqued when they interacted with your brand, and so they walked away when they should have stayed.

You cannot tally the lost revenue from those who either never found you, or who perceived your brand negatively and left your website without you ever knowing it. This is why it is so important to build your brand correctly.
Why risk millions to save thousands?

One reason so many Small Business fail is that they simply don’t understand how important marketing is to building a strong revenue stream—and so they allocate far too little money to it. Successful and highly profitable SMBs know how to allocate adequate funding to marketing each year. They know that marketing, if done properly, brings back solid returns…and also vice versa: not allocating enough to marketing could spell disaster. Think of marketing this way: It is a fundamental ingredient for profitability and growth.

Looking for a new marketing direction, request a quote for services from Montari Brooklyn Marketing & Advertising Agency. Call 855-We-Sale-U for more information or visit us at www.MontariBrooklyn.com.