Setting your Marketing Budget
The Role of Marketing
"Products and services don’t sell themselves. By ignoring marketing until it’s too late, many small businesses risk hitting a brick wall and, quite possibly, failing."
—Small Business Administration
For new businesses, one of the greatest struggles is acquiring those first few clients. Even older small businesses have trouble finding new customers and generating the sales they need to stay afloat. The simple truth is — if your customers don't know you exist, they can't buy from you.
That's where marketing comes in.
Marketing gets the word out about your business, making it easier (and therefore more likely) for customers to do business with you.
Marketing can cover a wide umbrella of methods, including: advertising, search engine optimization, branding, public relations, content, and more.
There is no one size fits all solution for marketing. Each business requires its own strategy which is affected by factors such as:
Company Size
Company Age
Industry
Product
Target Market
Budget
So you can get a better idea of how to setup a marketing budget, we will explain some of the factors that can affect your budget, and what a reasonable budget should look like.
Common Method of Setting a Marketing Budget
First, let's take a look at a simple, common method of setting a marketing budget. Percentage of sales.
A common percentage of sales for a marketing budget is 7%. So if your company is bringing in $100,000 in sales each year, your annual marketing budget should be $7,000.
Setting a budget based on your current level of sales would ideally allow you to maintain that level. This assumes your company has been in operation for a while and has a reliable customer base.
These numbers don't tell you what this budget is spent on (we will cover that another time) but it can give you an idea of the numbers you can expect to be looking at, and what factors can contribute to changes in those numbers.
Factors in Setting a Marketing Budget
Next, let's take a look at what factors can require a higher budget and why.
A higher marketing budget may be required for companies that are:
Recent Startups
New Customer Focused
In Competitive Industries
Attempting to Grow
Recent Startups: New companies with no previous exposure can require a bigger budget as breaking into the market is the most difficult point in a company's life cycle. At this point no one knows anything about your company, its products, its owners, its staff, etc. They don't know whether or not the company is trustworthy, if the product you sell can solve their problem, or if they will like the product or its quality.
At this stage, you not only have to let consumers know you exist, but you have to let them know what you're like, what your product is like, why you're trustworthy, and why your product is different from everyone else's.
Information such as this doesn't start to stick until consumers are exposed to it multiple times, so to overcome the lack of knowledge on you and your brand, all this information has to be delivered multiple times to the same target through multiple channels. Which of course drives the cost up.
New Customers: Repeat customers are less expensive to sell to than new customers. You already have their contact information and they already know what your company can do. That means with just one call or e-mail, you can likely get repeat business from that consumer, assuming they liked your product.
For new clients, which will be a large source of income for long-term goods and services and new businesses, a larger portion of the target market will require the full gamut of marketing to pull in, and thus will cost more to attract.
Competitive Industries: Different industries have different competitive environments. For some industries, like healthcare, companies are spending millions to gain market share and their audience's attention. Because consumers are exposed to so much material from other companies, new companies might just get overlooked. From this example you can see that the industry itself affects marketing strategy and budget. The more you spend on marketing, the better chance you have at drawing in customer attention over your competitors. (Provided the funds are spent in the right places.)
Growing: As mentioned earlier, setting a budget to match your current level of sales will maintain that level of sales. If you're attempting to grow, your budget should match your desired level of sales, as marketing and sales are correlated.
(There are many factors such as this that can influence your marketing strategy and budget, so keep them in mind. To simplify things, just take a look at your target market and your competition. What is your competition doing? And what does your target market expect of you? What makes them tick, and what will influence them to buy?)
Budget Pitfalls
Spending too little on marketing or spending too much in the wrong places can have disastrous effects. If your business isn't being fed new clients and revenue, it risks going under like so many new businesses do each year.
Consider your target market and how they make decisions. For instance, business to business clients may not respond to social media marketing as much as final consumers might, so it would be less effective for B2B companies to skew their budget towards social media.
Likewise, consumers of inexpensive goods may not require as much information about a product as consumers of expensive, long lasting goods. So in that scenario, spending money on long, complex brochures and websites explaining the process behind and benefits of, let's say chewing gum, may be a waste of resources.
Finally, consider the impact and reach a particular marketing method may have compared to its cost. Traditional advertisement, such as magazine ads, can cost a lot depending on the industry. When compared to something as simple as building a website, a website costs MUCH less, and has the potential to reach an even greater audience.
Picking the right strategy can seem overwhelming, but marketing specialists like us are here to help you every step of the way and turn the unique voice of your company into new clients!
Conclusion
In the end, once you understand what strategy will be best for your company, you can set a budget to match it.
Digital marketing is a low cost, high impact collection of marketing methods with a great level of reach. Through digital marketing you can create:
A Website, to make it easy for customers to find you
Video, that leaves an impression on viewers that is hard to forget
Content, (blogs, infographics, etc.) that shares valuable information that will help you capture consumers and demonstrate your credibility long before they make a decision on who to purchase from.
Of course digital marketing isn't the only component to a complete marketing plan, but it is an important and cost effective part of it.
Keep these things in mind when developing your marketing budget, and remember that marketing is not a cost (something to be avoided when possible) but an investment (a tool to help your business grow).