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Setting an effective marketing budget

Written by: Scott C. Margenau

Article Overview: Setting an effective marketing budget is based on how much money to spend on a marketing budget and how much you want to grow and how fast.

Setting an effective marketing budget

One of the most important decisions that a small to medium-sized business has to make is how much money to spend on a marketing budget. Prospects often ask, “How much should I spend on marketing?” The answer is, “It varies by industry and business size.”

It is also based on how much you want to grow, and how fast.

Both SCORE and USSBA define the variable for a proper marketing budget to be between 2% and 10% of sales, noting that for B2C, retail and pharmaceuticals can exceed 20% during peak brand-building years.

Most companies underspend on their budgets, thinking that not to spend is to save. This, quite simply, isn’t true. You’ve heard it before, and it bears repeating – you have to spend money to make money. The trick is to spend your money wisely on a tailored marketing plan aimed at fulfilling your company’s goals. Keep in mind that your marketing efforts are directly correlated with your revenue, so now is not the time to be penny foolish.

Budget-Setting Guidelines

There are two main things to consider when setting a marketing budget:

• The brand development or refinement of the brand and channels used to promote the brand. These include logos, Web sites, blogs, email campaigns, sales presentations, brochures, ads, etc.
• The ongoing expense of promoting and advertising your brand to your customer base.

For most small to medium-sized businesses, the percentage of revenue dedicated to a marketing budget is determined by industry and size. Below is a chart showing what we have put together based on several creditable sources.

Revenue Marketing Budget
Under $5 million 7–8%
$5–10 million 6–7%
$10–50 million 5–6%
$50–100 million 4–5%
Over $100 million 2–3%

Here’s an important consideration:

Every industry is different, so companies that sell to specific government branches or one that has an ultra-specialized niche may be able to deduct 1–2% from the above figures. If your company is B2B or B2C, 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 spending more than 20% of net sales. Overall average is reported as 6%.

Many other circumstances will merit an increase or reduction in your marketing budget as a percentage of revenue. Feel free to contact us to discuss this, or visit
http://www.sba.gov/smallbusinessplanner/index.html.

During an initial branding build or a re-branding phase, you should have a higher budget, which can be reduced in the future. This will allow you to contract for all the media you need to make an impactfull brand impression.

Last year, ImageWorks clients spent on average spent between $50,000 and $120,000 building or rebuilding their “brand language.” The broad range reflects business size and industry.

Can I still grow my company with “baby steps”?

Sure. We call this organic growth, and it is 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 on word of mouth alone, and are very successful.

But they usually hit a brick wall. That’s where building a solid branding campaign helps. To rely on partial branding or organic growth alone, you risk losing revenue from business you did not get because X% never discovered you or did not have their interest piqued when they interacted with your brand. Nor can you account for lost revenue from those who perceived your current brand negatively and left your site without you ever knowing it. This is why it is so important to build the brand correctly. Why risk millions to save thousands?

Why do so many small and medium-sized businesses fail?

One reason is that companies do not allocate enough money for marketing. Successful and highly profitable small and medium businesses (SMBs) know how to allocate adequate funding to marketing each year. SMBs realize that marketing, if done properly, brings back solid returns and vice versa—whereas not allocating enough in your budget for marketing could spell disaster. Think of marketing this way: It is a fundamental ingredient for profitability and growth.

Related Articles
  Effective low budget internet marketing strategies
  Squeeze Maximum Results from Your Marketing Budget
  Why It Is Essential To Set Yourself An Internet Marketing Budget And Stick With It
  How to Spend Your Marketing Money
  The Top Business Best Practice

Article Tags: brandingagency, marketingagencyfirms, strategicwebdesign, webdesigncompany



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Marketing is Marketing - I think what seems to be getting lost here is that marketing is marketing. Whether you use broadcast, print, event marketing, cause marketing, PPC or other internet marketing strategies makes no difference. Your strategy needs to include all the appropriate different outlets. And 'appropriate' is defined by more than just where your market can be found - your budget is also an important factor. The Expedia example is a good one - they do a lot of PPC advertising, but they don't rely on that alone - I see their billboards everywhere, ads in magazines and commercials on TV and radio. That makes sense, they are a business to consumer type of company and they have the budget. However, let's say you are a smaller company or a startup selling B2B, focused on the small business market. With a limited budget, 'traditional' off line advertising can be priced out of your range, but with PPC you can create an advertising campaign that fits your limited budget. Something you might not have been able to do with local print or broadcast media. And depending on your local market and the product/service niche you are in, it might be fairly easy to obtain organic search results. So in this case it would make sense to spend your limited budget on online marketing, strictly from an ROI point of view. Later, when you have the budget a mix of the two would make sense if you can reach your target market through traditional media. The reality is that most people reach for the computer to look up information these days, and if you're not there being found - your potential client will find someone who is. That means that part of ANY marketing strategy that includes advertising needs to have some kind of online component to it.
Re: How do you budget your life? - Why Budget? Here are twelve good reasons: A budget is a guide that tells you whether you're going in the direction you want to be headed in financially. You may have goals and dreams but if you don't set up guidelines for reaching them and you don't measure your progress , you may end up going so far in the wrong direction you can never make it back. Can you imagine the government or a major corporation operating without a budget? No, and neither should you. A budget can help you meet your savings goals. It includes a mechanism for setting aside money for savings and investments... A budget helps your entire family focus on... A budget can keep you out of debt or help you get out of debt. A budget actually creates extra money for you to use on things that matter to you. A budget helps you sleep better at night because you don't lie awake worrying about how you're going to make ends meet.........................
Best marketing decision I ever made - Hi myownboss - for my first company it was media exposure. Our target market was very spread out across the world and there was no easy way to reach them on a shoestring budget effectively. We got the industry journals to write about us and it got us great exposure which led to recognition and sales. For my company now, SEO is a big part of what we do. We have over 13,000 pages of content and Google is the #1 referral source to the website. It's an inexpensive way to reach a qualified buying audience - I personally think it's the most effective marketing solution for small businesses today.
Re: What is the most effective internet marketing strategy? - According to me social media marketing and viral marketing is the effective internet marketing strategy.
Re: Why Your Business' Website Is Not Making You Money - Hi All, Internet marketing is the new kind of viral marketing which helps your business to grow online on internet. It also depends upon your budget because to get high ROI, you also have to invest bunch of money.


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