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How to Spend Your Marketing Money

Written by: Stuart Ayling

Article Overview: When it comes to spending money - particularly for marketing - many businesses are not sure what to do. In some situations there is a history of implementing certain marketing activities for specific reasons, in other cases a fresh start must be taken. At all times there is a need to make sure your marketing budget is being planned correctly and spent wisely.

How to Spend Your Marketing Money

When it comes to spending money - particularly for marketing - many businesses are not sure what to do. In some situations there is a history of implementing certain marketing activities for specific reasons, in other cases a fresh start must be taken. At all times there is a need to make sure your marketing budget is being planned correctly and spent wisely.

Questions often arise about which marketing activities to pursue, how much to spend, and how to manage the steps along the way. The specifics of a marketing program for an individual business may be quite subjective. Often this is because there is a variety of methods (or marketing tools) that may be used to achieve the desired outcome. The expertise of a marketing professional can be useful in determining the optimal mix of these marketing activities. What is best for one business may not be best for another, even within the same industry.

Which activities will give us the best result? The answer to this requires us to incorporate our business objectives into any decision making process for our marketing program.

Each business should strive to implement a mix of sales and marketing activities that will help it achieve it's various business and marketing objectives. This usually means a mixture of activities to generate sales, increase awareness of the business/product within the target audiences, introduce new features or services, develop better relationships with clients and improve profitability.

When assessing marketing opportunities it's important to maintain the balance between short-term sales driven activities and other value-adding activities that will continue to bring results over time.

For example, think about the investment of time, money and personnel required to effectively participate in a major trade/industry exhibition. Initially the supposed 'high profile' or 'credibility' obtained by participating in a trade show may seem appealing…but will it divert your attention away from implementing a regular marketing program where more concrete expectations can be managed? Maybe the personal relationships developed during a trade show will be very productive, but are there other more cost effective alternatives such as personal sales calls and direct mail?

Focus on developing a marketing program with regular activities that is based on a sustainable marketing budget - small or large. No matter what the size of your business it is rare to find the budget is not being stretched by too many marketing opportunities. Set priorities and spend accordingly.

How do you set the right marketing budget?
There are four classic methods of setting a marketing budget:
All you can afford
Percentage of sales
Competitive parity
Objective and task

All you can afford
This method is often used by newer businesses or larger businesses that have financial constraints. The starting point is to simply calculate the available funds for marketing expenditure. Often this is a portion of what is leftover after other costs and profit expectations are accounted for. Generally this method is inappropriate, as it does not relate to planned activities or market conditions and results in ad-hoc decisions.

Percentage of sales
Manufacturers may choose to allocate a marketing budget based on a percentage of the expected selling price per unit, or even on a fixed dollar value per unit. If your marketing mix is static, your market and competitive environment remains unchanged, and your sales mix and volume is constant this method may suffice. Unfortunately it may not be based on reality if it uses last years sales or future sales predictions as a foundation.

Competitive parity
Determine what market share you want to achieve and spend enough money to achieve it. Sounds simple, but finding out what your competitors are spending is not always easy or timely. Often your marketing mix will need to be different to your competitors, based on the combination of your objectives. However, this method may be useful when considering specific marketing tactics such as a radio campaign within a defined metropolitan market, but can be misleading if used for the total budget.

Objective and task
Based on developing marketing objectives and a series of related tasks (or activities) this method will produce a budget that is aligned with your business goals. In most cases it is still necessary to temper the resulting budget with a reality check, to ensure overall financial considerations are being maintained. The procedural elements of setting a budget using this method can also encourage objective evaluation of previous activities to craft a more effective marketing plan for the future.

It's probably clear to you that I recommend using the objective and task approach when formulating your marketing budget. Even with a monetary ceiling in place you will at least be setting priorities and spending your money on the most important marketing activities. If you want to you can still allocate a portion of your budget as a "discretionary fund" for use on unplanned activities.

A well-planned marketing budget will add strength to your business, allowing you to obtain maximum mileage from your marketing dollars. You can control it!

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