There’s an old adage that says, “You have to spend money to make money.” While that’s certainly true, even the most successful businesses have to be careful just how much they spend in their quest to turn a profit.
Of course, one major component of “spending money to make money” involves setting a marketing budget. No matter how you approach it, marketing is the key to making your product well-known and accessible to your audience. You can build the best widget anyone has ever seen, but if no one knows about it, you won’t make a dime.
We’ve updated one of our most popular blog posts to illustrate the finer points of setting – and adjusting – a marketing budget. Read on to learn more about setting your business’ marketing budget, and get tips for successful marketing on any budget.
Percentage of Sales vs. Goal-Based Marketing Budgets
The tried and true advice for determining how much to spend on marketing is to base your budget on a percentage of the previous year’s sales. Most established businesses do this, and they spend an average of 1-15% on marketing each year. The U.S. Small Business Administration (SBA.gov) notes that B2C, retail, and pharmaceutical companies often spend more than 20% on marketing when they’re in the middle of “peak brand-building.”
However, when you’re just getting started, your previous year’s sales may be non-existent or they may reflect how few people knew about your business during that time. Most companies struggle through the first five years or so, and part of that struggle comes from balancing the financial limitations of being a start-up with the need to market your products and services to your target audience.
If your business is new or currently reinventing itself, you’ll need to think about marketing on a wider scale. Consider your goals for the coming year. How many new clients do you need in order to make next year a success? How many products do you need to sell? Think about how your leads are converting at the moment, and consider how many leads you might need in order to reach those sales goals.
A goal-based budget tends to be more effective than simply choosing to work with a percentage of previous sales, but it can require trimming costs in other areas to ensure you have enough to spend on marketing. Many businesses fall into the trap of setting a marketing budget by using up the funds that remain once all other expenses are covered. This just isn’t sustainable!
Marketing is a key cost of doing business, and if you base your efforts on leftovers, you’re likely to be left behind by the competition.
For a quick overview, take a look at what others are spending based on revenue:
Less than $5 million
More than $300 million
But don’t let something so rudimentary define your budget. The SBA website can help you out with more industry-specific information, or you can contact our experts for a thorough review of your goals and expectations.
Is a Big Marketing Budget Out of the Question?
Talk to us. Growing your business with baby steps may take longer than you’d like, but there are plenty of low-cost ways to spread the word about your company. If you have a small local business, advertising via local search directories like Yelp and YellowPages.com can help attract your target audience. If your business is highly specialized, we can probably find some industry-specific ways to raise awareness. Viral marketing, events listings, and social media marketing can also bring attention to your company without breaking the bank.
Failing businesses have proven time and again that “fly by the seat of your pants” marketing just doesn’t work. A small budget is better than none at all, and crafting a strategy to accompany that budget will help you achieve better results than if you simply trudge along and
Think of Your Marketing Budget As a High-Interest Loan
When you set a budget and work to create a marketing strategy, you’re loaning money toward the success of your business. When your marketing campaigns work, they bring back the money you spent – and they bring a lot more with it!
Of course, some strategies have higher “interest” than others, and which “loans” will result in the highest interest depends a lot on your business. That’s why a good marketing firm takes the time to perform a thorough discovery before embarking on any actual marketing. Only then can the best strategies for your business be determined.
Whether you’ve been coasting by without any specific marketing goals or your current plans aren’t yielding the results you need, reevaluating your budget and how you spend it is a good place to start. Come back next week for Part 2, where we discuss how to spend your marketing budget (no matter how big it is)!