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How to Establish a Marketing Budget

by Russ Schell, Media Solutions Advisor / 09-03-2014

Whether you’re a startup or an established business there’s a question you probably ask yourself at least once a year. “How much should I spend on marketing?” Everyone you talk to would probably answer that question differently, ranging from “Nothing!” to “As much as you can afford.”

What helps to determine a more accurate answer? Well, how established your business is can be a determining factor. New(er) companies are likely going to have to spend a higher percentage of revenue than established, profitable companies. Maybe as high as 15% to 20%. A business with a high profit margin may choose to spend a little more than it would normally just to stay “out front.”

Another consideration is the type of business you’re in. Ultimately that determines, in part, where your customers can be found. If your customers cover a wide demographic then traditional media may be effective. Print, broadcast, press releases, and outdoor may work for you in some mix but they’re all hard to measure. For a business with a narrower customer focus a strong, content-driven website (containing informative video) and targeted social media may make more sense. They may be more effective and less expensive in the long run and they’re certainly easier to measure. Of course you must measure results and be prepared to adjust your marketing “channels” as you see what’s working and what isn’t. Your budget parameters may be set in stone but your allocations don’t have to be.

But if you want “hard” numbers let’s start here. 18% for a new company. 12% for an established company. 6% for a mature company that does a substantial amount of repeat business. Your market, and the role you fill in it, will determine the real percentage you need to spend. Some businesses don’t subscribe to the percentage of revenue approach to setting a budget. The primary strength of this budget practice is that it will grow and shrink with sales. Some companies prefer to set a dollar figure for their annual marketing budget. Others prefer to analyze the competition, estimate what they’re spending, and match it in order to remain competitive. (Here though we’re assuming that the competition is spending enough but not too much.)

Yet other companies work back from their marketing objectives (or sales projections) and set their budget in order to meet their objectives. This is great so long as your objectives are realistic and attainable.

Regardless of the approach you take to establish a marketing budget three things are true.

  1. You need to have one.
  2. You need to measure the results of your marketing efforts and adjust where necessary.
  3. Failure to do the first two may cause you to market your business “For Sale” when it fails.