How to set a marketing budget
What ever planning cycle your business runs on there will be key points of the year which you will need to set budgets for the following 12 months. Knowing thee best way to set your marketing budget really depends on the type of business you are, how long you have been established in the market place and your target markets.
The one big mistake often made is that companies like to pick a figure and then work out how they are going to spend it. We would argue that the best way of setting your marketing budget is by completing or reviewing your marketing strategy .
Until you have set out your objectives for the following year, had a full review of where you are now by carrying out a marketing audit , you won’t have an accurate picture of what marketing activity you need to carry out.
There are however several ways by which you can set the figure you need. We have listed below the top 4 ways of setting a marketing budget together with the pros and cons of each method.
1. Objective and task-based marketing budget setting
Objective and task-based is the method that we would advocate most strongly by creating your marketing strategy first you will have your objectives and the tasks needed to achieve these objectives. for example: increase your client base by 5% within the next six months. Think about everything you can do to help achieve this and then estimate how much it is likely to cost. You may not have the funds to do all the tasks so prioritising the ones that you know are likely to give you the best return.
Pros: It is an accurate method: It matches the budget directly to the objectives you want to achieve. If properly implemented the marketing activity becomes an investment, not just an expense. By spending whatever is needed to reach the objectives your company may grow at a faster rate.
Cons: If you are new to marketing it might be difficult to accurately estimate how much something is likely to cost.
2 Fixed Percentage of Sales marketing budget setting
Probably the simplest way of setting a budget. You look at the gross sales turnover for the previous year, or the average of the last few years, then allocate a specific percentage of that figure for marketing activity.
As a rule of thumb:
* To maintain current awareness and visibility – 5% of turnover
* To grow your market share – 10% of turnover
* To launch a new product or service – 20%
Pros: It is simple and easy to work out. If you are in a predictable industry then this could be a safe option, it keeps the budget in relation to sales volume.
Cons: The budget is based on past performance. You may lose the opportunity to capitalise on changes in market conditions or buyer behaviour. This method also assumes that sales are directly related to marketing, which isn’t always the case. Many other factors can affect sales.
3. Look at the Competition – what budgets to they set?
Look at your competitors or adopt the industry average for marketing budgets for your company. Many trade associations and industry publications can provide the average amount or percentage companies spend on advertising or failing that a google search might give you some insights to.
Pros: This is an easy approach if you have a company with predictable sales patterns.
Cons: Your competitors are unlikely to tell you their marketing spend and using aggregate industry figures assume that they apply to all businesses in the marketplace. You may not take into account local market forces or miss opportunities to increase market share by sticking rigidly to these figures rather than increasing spend.
4. The Maximum you can afford marketing budget
A risky strategy but often adopted by Lots of fast-growing businesses, they set aside just enough money to sustain the day to day running of the business then spend the rest on marketing.
Pros: It could offer rapid growth as do many aggressive methods.
Cons: It is a very risky strategy. If your marketing fails, you will not have any reserves to fall back on. It also does not allow for the unknown. Should something catastrophic happen like, a major client moving to a different firm or if there was a major incident like a fire at your premises you may not have the necessary funds to bridge the gap until normal service returns.
While all of these methods have their pros and cons, we still would advocate that they only ever be adopted after a full marketing strategy has been created.
If you would like help with any aspects of your marketing strategy or implementation, please do get in touch.