How much should you spend on marketing?

Steve —  September 20, 2012

I’m often asked the ‘how much should I spend on my marketing budget?’  question….and my response is always…well it depends.

The bottom line is that the marketing budget for your business is not something that can easily be determined by a formula. Spending on marketing support varies widely, with industry commentators estimating that most companies spend between 2% to 4% or 22% to 25 % of gross revenues depending on the business model.

So if you’re sitting down to plan your marketing budget, here’s some points to consider.

What are your goals?
Stating the obvious – until you define your goals, there’s really no logical way to establish a marketing budget. You will need to have a well defined marketing strategy with measurable objectives.

% of gross revenue
If a company has aggressive goals for increasing revenues, then establishing the marketing budget as a ratio of the revenue goal makes sense. Reducing marketing spending is likely to reduce the acquisition of new customers or even jeopardise the company’s current market share. Companies that have plans to grow rapidly generally need to spend a higher percentage of sales to achieve that goal.

Competitive Parity – what’s happening in your industry ?
Spending ratios are obviously influenced by competitive activity.
What are your competitors doing and where are they active ?
If you are in an industry where all of your competition is spending 5% of gross revenue and you’ve allocated 1%, then you’ll have to revisit your objectives.

Again it gets back to what you are trying to achieve.

Whichever approach you adopt make sure that you allocate funds for measuring performance against your objectives.
Your marketing spending has to be based on measurable objectives. Each business has a slightly different situation that needs to be considered in establishing a marketing budget. Optimising your marketing spend with benchmarking and tracking metrics on an ongoing basis is a requirement for businesses to thrive and have above average results.

Don’t think of marketing as an expense category. Think of it as a profit center.

You spend money on marketing because you expect it to generate more profit.  If it isn’t generating that profit or meeting a strategic objective, it’s time to review. Test alternate approaches until you find the vehicles that actually meet your objectives.

Establishing a budget is of course just the beginning….

1. Strategy Comes First
The basic rules of good branding are more relevant today than ever.
– a clearly differentiated brand promise
– a well executed communications campaign
– supported by your internal culture who share the company vision

2. Customer Focus 
It’s never been more important to segment and look at the ways to engage your customers.

3. Get your data right
Everyone wants to improve their ROI. The core of this, is understanding what’s going on.

4. Measure and improve
The important thing to remember is that; if your measurement doesn’t produce results that will enable you to act strategically then you won’t get the returns that you’re looking for!

5. Values
We are in now the age of transparency. Smart companies are aware that people are looking for brands that consistently keep their brand promises.

Steve

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