It’s One Thing To Have A Marketing Budget
It’s Another Thing To Know How To Spend It Wisely
Happy 2016, friend!
I have a question for you. Do you have a marketing budget defined for your business?
If you answered "No", it's OK. You are not alone. If you have answered "yes", do you feel you are planning on investing enough to get the job done?
I was recently visiting with a prospect and the question about marketing budgets came up. I figured he’s probably not the only who’s curious, so why not address the question here.
In this post we are going to discuss how to calculate you marketing budget based on your percentage of projected gross sales/revenue, as it is the most commonly used.
Before we begin let me state that the obvious answer to how to determine your marketing budget is… “it depends”. It depends on many factors such as:
- your industry
- how many years you have been in business
- your competition
- your growth strategy, just to name a few
In this article on the SBA.gov website from 2013 they give a decent breakdown on how much money you should allocate towards marketing.
Based on the information they provided, they recommended between 2-5% of projected gross sales. But depending on the size of your business, your industry and growth stage you may want to plan on more. For an example, a retail business in the early years may need to allocate up to 20% of gross projected sales while getting started.
They also suggested the following:
“As a general rule, small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing. 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.), and
2) the costs of promoting your business (campaigns, advertising, events, etc.).”
So, based on these assumptions from the SBA, let’s break this down a little more shall we?
|Type of Business / Projected Revenue||% of Revenue For Marketing|
|Small Business with less than $5 Million in revenue||7-8%|
|Small to Mid-size Business between $5-10 Million in revenue||6-7%|
|Mid-Large Companies between $10-100M in revenue||5-6%|
How does look in terms of dollars invested in marketing? Here are a few examples.
|Projected Yearly Revenue||Approximate Yearly Marketing Budget|
|$200,000||$16,000 a year|
|$1M||$70-80K a year|
|$5M||$300K & $350K a year|
|$20M||$1 million & $1.2 million a year|
|and so on|
Now the questions are::
- How does one determine how to spend the money wisely?
- How much should be earmarked for your online marketing budget vs traditional marketing efforts?
The answers to these questions are simply, it depends on a lot factors, many we have already discussed above. But you have to look at where you are currently, and where you want to be and in what period of time.
You will need to spend this budget on things like:
- Trade shows
- Marketing staff
- Content, blogging, video, etc
- Marketing technologies and analytics
- Social media
- Paid advertising (PPC, paid social etc)
- and much more
Depending on your situation, you should plan a minimum of 25-50% of your budget to go towards your digital marketing efforts, and in some cases even more. The best part about digital and inbound marketing, when done properly, is that you can be dang near 100% accountable for your growth, and measure your success.
At the end of the day, the ideas here are an approximation, and can and will change depending on your business and the markets you serve.
Until next time,