Whether you run a small business or a multi-million dollar corporation, marketing is essential to your profitability and growth. Yet many small businesses don’t allocate enough money to marketing or, worse, spend it haphazardly. Marketing budgeting is a complicated but important process. Marketing budget is a very important metric to set the right goals for your business

While the marketing industry is filled with strategies and ideas, it’s easy to get flustered by all the things you “should” be doing to help your company grow. Ultimately, it all comes down to planning and budget.  So let’s pull back the velvet curtain on what pricing really looks like and what you can actually expect for your dollar spend.

The first question we ask a new client is, “Do you know what your budget is?”  Usually, that’s when we see the client’s eyes get as big as saucers as they reply, “I have no idea! That’s what I thought you were here for.”

How to Calculate your Marketing Budget

To understand the recommendation, first, let’s define ‘marketing budget.’ Your marketing budget refers to all costs for marketing, advertising, public relations, promotions and anything else you might blanket under that very wide-cast net called ‘marketing’ on a day-to-day basis: for example, Google AdWords, social media, print ads, sponsorships, collateral and even tastings.

As you’ll see below, the ideal budget depends on your current marketing foundations. BUT, as a general rule based on the latest research, expert opinions and years of marketing experience, we say:

Many businesses allocate a percentage of actual or projected gross revenues – usually between 2-3 percent for run-rate marketing and up to 3-5 percent for start-up marketing. But the allocation actually depends on several factors: the industry you’re in, the size of your business, and its growth stage. For example, during the early brand-building years retail businesses spend much more than other businesses on marketing – up to 20 percent of sales.

Over the past five years, we’ve developed what we call “marketing math” to help clients define exactly what they should be spending on marketing:

New companies: For companies that have been in business for one to five years, we suggest using 12 to 20 percent of your gross revenue or projected revenue on marketing. (Companies less than a year old, tend to need to ramp up before spending marketing dollars.)

Established companies: For those companies that have been in business more than five years and have some market share/brand equity, we suggest allocating between 6 and 12 percent of your gross revenue or projected revenue.

This budget should be split between:

1) brand development costs (which includes all the channels you use to promote your brand such as your website, blogs, sales collateral, etc.)

2) the costs of promoting your business(campaigns, advertising, events, etc.).

This percentage also assumes you have margins in the range of 10-12 percent (after you’ve covered your other expenses, including marketing). If your margins are lower than this, then you might consider eating more of the costs of doing business by lowering your overall margins and allocating additional spending to marketing. It’s a tough call, but your marketing budget should never be based on just what’s left over once all your other business expenses are covered.

Marketing, Budget

Chicken and egg marketing

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. I’m here to tell you, to establish a brand you have to crack many, many eggs.  That’s why it’s so critical that startups and established brands alike are well funded.  It’s 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 dollars are 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.

How to Spend Your Marketing Budget

If you are marketing from a fairly static annual budget, you’re viewing marketing as an expense. Good marketers realize that it is an investment. – Seth Godin

Set Marketing Goals

The first step toward marketing budget allocation is determining your marketing goals for the year. We recommend at least three S.M.A.R.T. goals with predefined success measures tied to each.

Here are some common ones:

  • Increase website traffic—measured by unique visitors per month
  • Increase targeted leads to the website—measured by web visits from our geographic service area
  • Grow new business or develop new division—measured by total leads and sales revenue

Check Your Marketing Foundation

Next, examine your marketing foundation. Do you have the foundation in place to reach your goals?

Check your brand, website, communication pieces and reporting systems. Questions to answer:

  1. Do you have a clear, up-to-date brand that properly identifies your company and consistently generates the same brand image as consumers?
  2. Does your brand have a consistent look and feel across all media?
  3. How does your website compare to the competition? Tip: Google “catering [your primary region/city]” e.g., “Catering Las Vegas,” and compare.
  4. Are there any barriers in your prospects’ path toward becoming customers?
  5. Do you have the tools and systems in place to measure the success of your marketing investment?
  6. Do you have a solid and solidified strategy for business development and marketing related to it?

Fear of missing out

This term applies to marketing just as much as it does to your Saturday night plans.  There are certain unalienable marketing rights of passage that you must spend time and money on so you don’t miss the brand boat:

  • Branding
  • Website
  • Social media
  • Advertising
  • Content
  • Events

Now obviously the mix and dollar spend on each of these will differ significantly based on your product or service but resign yourself to the fact that each of these will take a sizeable bite out of your budget.

Bringing together the data from these credible sources in the marketing community should help you determine how much to spend on marketing, and where to apply those investments.

At LookinLA, we know your marketing investments should result in profitable sales.

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