Developing Your Marketing Plan: Part I
“How Much Should I Spend on Marketing?”
How effectively you market your business depends on how much you spend and how successfully you promote your company. Of course, the amount you spend on advertising will vary by type of business and how long you have been in business. A good rule of thumb is to budget between 2% to 10% of sales income. Start-up businesses have, typically, less money to devote to marketing, but, generally, have to spend more than well-established companies, which have the leverage of prior customer satisfaction to sustain a company’s cash flow, thus keeping marketing costs at a lower level.
Begin with Two Major Factors
So, lets say, for the purposes of this presentation, that you fall within the 2% to 10% range. You are now faced with the very tricky task of determining how to spend your money wisely on a marketing approach that meets your income goals. The key to any expenditure of your resources is to remember that they have a direct bearing on your potential revenue. But, before you can think about how much you need to spend on advertising you must give serious consideration to a couple of major factors: (1) the development of the marketing brand or image your company wants to project, and (2) the type of promotion and advertising programs that best increases the sales of your products or services to existing customers and prospective customers.
Do Your Homework
As an initial step, if possible, look at what your competition, especially “market leaders”, are spending to promote their business. Identify the types of advertising media your competitors use, such as, direct mail, newspapers, magazines, radio, television, websites, social media, etc. Contact the respective advertising sources to learn how much they charge for their services based upon the type of ads your competitors have used. The objective should be to:
Allocate sufficient funds to position your business successfully to out perform the competition
Increase awareness of your company Increase revenue
In other words, if you want to succeed in business, you will have to aggressively invest in your business’ marketing efforts to achieve your revenue objectives.
Consider the Ultimate Low Cost Marketing Option
One way some business owners try to avoid a major cash outlay for marketing is to grow their business through word of mouth. This can be a very effective, cost efficient method to initially grow; however, most people discover that, sooner or later, their business stops expanding at a sufficient rate of growth to sustain their capital needs. At that point, they will need to develop a branding campaign to increase business. This, of course, will cause them to expend more of their income while at the same time they must now begin to develop a marketing plan. With that said, word of mouth advertising can still be a very important part of your growth strategy, and should be a part of your overall business approach to build your company.
Thus, to determine how much to spend on marketing, which assures your business survives in this challenging economy; you should begin by developing a marketing plan. In Part 2 we will explain the elements of a marketing plan, and how to develop a marketing plan that provides the most information for growing your business successfully. From the simple examples of how to prepare a marketing budget, you will be able to determine how much to spend on marketing your business.
Let me know your thoughts on how you have approached your advertising costs projections in the past as well as your experience in setting marketing goals and budgets. Your opinions and questions are always welcomed.