Building a Small Business Marketing Budget – Part 2 of 5
Welcome back! If you are following our series, you’ve probably already read the previous posts. If not, check them out here:
On to the next post…
Determining What Percent of Sales You Should Spend on Marketing
Articles on the internet will tell you anywhere from 5-10% of your revenue should be spent on marketing and advertising.
If that has you gasping for air, don’t worry. We believe a small business can do some really great things with 2-15%. It all comes down to prioritization, hard work and how aggressive your marketplace is.
Keep in mind that three things drive up the cost quickly: Advertising, special projects, growth, and your marketplace.
Advertising – B2B vs. B2C Expenditures
The rule of thumb – B2B leverages sales to generate leads, B2C leverages advertising to generate leads
Advertising is great, and it does two things: Creates brand awareness and generates leads. But it’s also expensive. B2B organizations can often get away with smaller advertising budgets because they rely on their sales force to generate leads, so they may be closer to the 2% mark. Consumer marketing almost always relies heavily on advertising to generate leads, increasing the marketing budget up to or sometimes surpassing 15%.
Special Projects – Building vs. Maintaining
The rule of thumb – Building a brand is more expensive than maintaining it
If you have a great brand, a website, collateral, and other tools in place, you won’t need to dedicate as much of your budget to getting those special projects off the ground. A “maintenance” budget is much less expensive. If you do need to build (or rebuild) any of these basics, you will likely be closer to 15% of revenue.
Growth – Moderate vs. Aggressive
The rule of thumb – The more growth you want, the more you need to invest
Maintaining your companies revenue or projecting moderate growth for the year can often be accomplished at the 2% mark. However, if you are forecasting a record year, you will likely have to invest cash to make that happen. Many small businesses struggle with this factor as they grow, so if your marketing budget seems too expensive, look back at your sales and growth forecasts to determine if it aligns with your overall goals.
Marketplace – Low vs. High Competition
The rule of thumb – The more competition, the more advertising spend.
If you have chosen the fun uphill battle of building a brand in an aggressive, consumer goods segment…that’s the hardest equation of all. The more competitive your market, the more advertising dollars you typically need to spend. Automotive, home repairs, hospitality, healthcare, home goods and more, these firms can expect to spend more on advertising than their counterparts – 10, 15, or 20% at times. In addition, keeping campaigns fresh adds more cost to the equation.
Stay tuned for “What should I include in my marketing budget?” in next week’s post!