Determining your marketing budget

marketing budget, marketing, budgetDetermining your marketing/advertising budget is perhaps one of the hardest things to determine for your business. As marketers, we want to create affordable services to our target industries to satisfy the customer as well as make profit for the business. But some businesses don’t have a big budget like others, and get left behind. For instance, we look at the budget and turn it in a way where both businesses are happy.

So how do you determine how much you can spend? There are many ways to determine how figure out your budget. In this post, we will cover a three different ways you can determine a more suitable budget for marketing for your business.

1. Fixed percentage

A. Percentage of revenue

    • taking a fixed percentage of your revenues and allocate that amount for marketing (basically decide on a certain percentange you do want to spend on marketing for your business).
      • For smaller businesses, the most common used numbers are 20%
      • For small/medium sized businesses, the most common used numbers are 5-10%
      • For large businesses, the most common numbers are between 2-5%
    • Picking the percentage that works best for you will probably take some trial and error

B. Percentage of net sales

Just like taking a percentage of revenues, this avenue will help determine your marketing budget as a fraction of your net sales. This method is a little bit less aggressive than the last method, since you exclude expenses from your calculations. And just like the percentage of revenue, this method will also take some trial and error if you can’t seem to find the right numbers.

2. Matching Competitors

Another method to create a marketing budget is to analyze and estimate what the competition is spending and copy them. This can work, but this method also assumes that the competitors are spending the right amount, and that their marketing efforts are in fact working. When using this method, the revenue of a business (in your industry) should still be taken into account.

3. The Dollar Approach

There are actually many businesses that simply set a flat dollar amount for their marketing budget. It can be particularly useful for small businesses, they can base marketing budgets on what they think the company can afford instead of the company’s sales.

Picking a flat rate is more effective for companies looking at a one-time expense, like a public relations marketing, trade show or advertisement, and not a long range marketing plan.

There are numerous other ways to determine your marketing budget, but the first thing you need if you don’t have one is a marketing plan. It ensures you spend only on the programs that make sense for your business, and not the “let’s try this” method. Too many times small businesses work without a marketing plan and spend money on marketing efforts that have absolutely no return on investment.

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