How much should I spend on marketing?

The Marketing Budget for Entrepreneurs

When it comes to setting up a marketing budget for entrepreneurs, there are a lot of different opinions. Yes, there seem to be a lot of ‘experts’ who want to advise you, but be on the lookout. Very few large privately-owned companies have a formal budget and when it comes to smaller companies, marketing budgets are pretty much non-existent. It is more of a fly-by-the-seat-of-your-pants thing. The trouble is that more often than not those pants are still firmly around your ankles!

It might sound like a cliché, but planning is the key to all business success. If you fail to plan, you plan to fail. The better you plan, the more you will be able to effectively utilize every cent you spend on marketing. And yes, I know this is much easier said than done!

Chicken and egg marketing budget

I need to grow my brand to make money, but I have no money to help do that. Sound familiar? We call this chicken-and-egg marketing. To establish a brand you have to crack many, many eggs. That’s why it’s so critical that start-ups and established brands alike are well-funded. Almost like building a house: It’s almost always going to take more time and way more money than expected. If you aren’t well funded, make sure your money is spent wisely and tied tightly to specific deliverables. There is nothing worse than spending every penny you have to build something the wrong way only to have to start over again. So do it right the first time.

Marketing by Percentages

Percentage of gross revenue is one of the more favored methods for marketing budget by entrepreneurs to be executed because it allows you’re spending to fluctuate as your revenue does. In the real world, however, marketing and advertising budgets vary widely based on your industry, competition, profit margins, and a host of other considerations.

New versus Existing Product

It costs more to market new products than it costs to market existing products. Therefore, if a business is launching a new product or product line, the percentage of annual sales revenue they will need to budget towards marketing will be closer to 20 percent and above than a company that is spending its marketing budget to continue to promote an established product line. In this same vein, how quickly a company wants to grow and expand will also determine how much needs to be spent on marketing and advertising.

Brand Awareness

With approximately 50 percent of marketing funds going towards building brand awareness, companies that have established a strong brand in their given markets have a competitive edge when it comes to how much they will have to spend to maintain their brand awareness. If a company’s target market is not familiar with either the company itself or the brand of products or services that the company offers, the percentage of sales revenue budgeted towards marketing will need to be higher.

Spending Variables

There’s a limit to how much you can afford to invest regardless of what others are spending. Let affordability guide your spending. Then, recognize that certain internal and external factors may cause your spending to fluctuate. Starting a business or introducing a new product requires more spending than spending on an ongoing business. However, in a highly competitive economy, you will have to increase your marketing budget just to maintain your existing sales levels. Also keep in mind that a brand like Coca-Cola consistently stays at the top of the worldwide advertising spend, even while they are the top brand in the world.

If you’re selling high-ticket, high-margin goods or services, you can afford to spend more on marketing. Likewise, if the competition is giving you a fit, you may have no choice but to increase your marketing spending.

Marketing Drives Revenue

Marketing typically drives revenue rather than the reverse in most successful businesses. Moreover, marketing and advertising spending in most successful businesses is task- or project-oriented. Task-oriented marketing requires a marketing plan, something most marketing experts strongly recommend. The percentage-of-gross-revenue calculation is a useful ballpark gauge of spending parameters. But, you need to be flexible depending on the requirements of your marketing plan.

Test & Measure

As with everything in business you need to test and measure.

Ensure that your receptionist and or salespeople keep a record of which marketing actions have delivered results. Do your return on investment calculations regularly.

If you count the cents, the rands will follow.

Send us an email if you would like a FREE marketing return on investment calculation template.

You Still Need a Dedicated SalesPerson

Don’t forget that the marketing budget for entrepreneurs is only to build your brand. You still need a salesperson who has to pick up the phone and make those calls. Sales are not going to fly through the door. Yes, if entrepreneurs spend their marketing budget carefully it should make the job of the salesperson dramatically easier. But you still need to make that call.

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