Businesses often ask me how much they should budget for marketing each year. I tell them that unfortunately, there is no easy answer or fix. The dynamic of marketing budget allocation across countries, products and services is subject to many variables, especially in these digital times where the complexity, overlapping and rapid changing of marketing is making the implementation of marketing budgeting and strategies a real challenge for companies across the world. When things get too complicated I always recommend returning to the basic principles of marketing and start building from there, since each company and market are unique.
Going back to the topic of this article, there are a few basic rules that you can follow. Below you will find my guidance. on
Whether you run a small company or a large corporation in the US, Peru, China, or Spain, marketing is imperative to your profitability and growth. Yet many small businesses don’t allocate enough money to marketing or, worse, spend it ineffectively.
For most small businesses, the percentage of revenue dedicated to a marketing budget is determined by industry and size. As a general rule of thumb, companies allocate a percentage of actual or projected gross revenues – usually around 5 percent of their total revenue on marketing to maintain their current position in the market. Here is some information that will give you an idea of the percentage of distribution.
Remember to adjust your budget for your industry! The allocation depends on three factors: the industry you’re in, the size of your business and its growth stage. Companies looking to grow or gain greater market share should budget a higher percentage—around 10 percent.
Using these general rules of thumb, calculate your company’s ideal marketing budget below:
Two main things should be considered when setting your marketing budget:
Of course, these percentages vary by company and industry. If your company is in a highly competitive industry--such as retail, consumer products, or pharmaceuticals-- you will be spending 20 to 40 percent of your net revenue on marketing.
Revisit Your Plans Often and Track ROI
No marketing plan or budget should be inflexible. The market is always changing, as should your marketing plan. The chances that you will need to throw in an unplanned campaign or event are very high, which is why it is critical to leave your company extra funds for such circumstances. At the end of the day, knowing whether what you are spending is actually helping you achieve your marketing goals is more important than sticking to your budget.
Create a plan for measuring your spending and the impact that these activities have on your bottom line. Compare tactics and analyze seasonal effects – was one quarter more profitable than another? Why?
As seen above in the chart that utilizes data from a worldwide study of business’ ROI, between long term and short term ROI per dollar spent on various channels of advertising.
Keep in mind that marketing plans should be maintained on an annual basis at a minimum, and revisited if you launch a new product or service, or if the market landscape changes.
Above all, have patience and follow through on all your marketing efforts across the organization – it takes a village to build and grow a brand. Despite some tactics being difficult to measure, like the efficacy of print collateral, you need to consider the impact of not having these branding staples in your tool kit before you eliminate your print funds.
Do not forget, Advertising works!
I am a firm believer that a clear vision, backed by a definite marketing plan that follows strategy and discipline as it’s north star and the right allocation of your company marketing resources can give your business the great ability to move forward. As Mark Twain once said, "Many a small thing has been made large by the right kind of advertising."
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