I am working with a client at the moment to help them determine their marketing budget. During the process I realised that many organisations, especially the smaller ones, have no idea how to determine their annual marketing spend.
Which is perfectly understandable – it is especially difficult for start-ups and newer businesses to figure out their spend because they don’t have the history of sales to help them – but as a business it is one of the most important decisions you will make.
The following tips will help you to determine the marketing budget for your business.
Why You Need a Marketing Budget
Most businesses start by growing organically, using word of mouth as their primary means of marketing. Which is perfectly ok! We started Chocolate Shoebox the very same way. But there comes a time when every business will hit a glass ceiling and breaking through into real sales and success means allocating real money to your marketing.
How Much is Not Enough?
So once you’ve made the decision to allocate a budget, how much do you allocate? Most organisations under-spend, believing that not spending is saving. This is a major misconception. Remember: you have to spend money to make money. Rather focus on refining your budget than cutting it, and really focus on using a marketing mix that will give you the best bang for your buck.
Setting Your Marketing Budget
1. Determine what you are able to afford
The answer to your marketing spend depends on the phase of your business, the industry you are in and how fast you want to grow. The average marketing budget is between 2% and 10% of sales. However B2C products and services can be as high as 20% depending on the season and the competition in the industry sector.
The amount of spend is usually determined by the size of your business
- Less than R5 million – 7% to 8%
- R5 to R10 million – 6% to 7%
- R10 to R100 million – 5% to 6%
- R100 to R300 million – 3% to 5%
- +300 million – 3% to 4%
For niche or highly specialised organisation, you can reduce this spend by 1% – 2%. For organisations that focus on B2B and B2C products and services you may have to raise this amount by 1% to 3% in order to see real results.
2. Split up your budget into a marketing mix
Once you have determined how much you can spend, the next step is to consider how to best spend your money to get the best results?
There are two main areas of a marketing to consider when assigning your budget:
- 1. Brand development and refinement costs
These are usually once-off costs such as website development, videos, email campaigns, competitions, presentations and brochures etc. - 2. Ongoing expenses
These are continued monthly costs such as search engine marketing and advertising, social marketing etc.Plan for this split – brand development projects take far more in upfront costs than ongoing marketing initiatives.
3. Determine who will be doing your marketing
Are you going to do your own marketing, or will you set aside a portion of your budget to pay someone to do it for you? This is a tough decision to make, but be honest with yourself about the time you have to allocate to your own marketing.
Working with a marketing company
A marketing company can assist you to plan your marketing initiatives over the course of a year so that every two months you are producing something towards your brand development. They will also likely make a retainer option available, allowing you to market yourr businesses without a massive upfront spend.
Doing it yourself
There are hundreds of tools and resources on the internet to help you do your own marketing. Ideally if you have the budget, get an expert to help you. If not, be sure to educate yourself about how to market your business effectively – try www.small-business-forum.co.za for some great ideas and resources.
4. Plan the management of your marketing expenses
For smaller organisations, managing marketing expenses can be a very tricky process. But be vigilant.
The best way to do this is to plan a long-term approach. Set 10% of your sales revenue aside each month for future marketing initiatives. This way when you start future marketing campaigns you will have the funds set aside to do them properly.
The Bottom Line
Any effort you put towards your marketing is sure to help your business, but spend your money wisely. For the majority of smaller organisations, an online approach work best because it is affordable and trackable. If you have a bigger budget, don’t put all your eggs into one basket – ideally you want a good mix of both online and offline channels.
Next week I will be covering Determining Your Marketing Mix – be sure to check back for it or follow us on Facebook if you would like us to let you know when it’s up.
