How to set a marketing and advertising budget
Introduction – Understanding the basics of spend
Deciding on a marketing & advertising budget can be perplexing. Value for money and choice of advertising medium has improved exponentially. The addition of Internet based marketing offers brand awareness campaigns to all businesses large or small and remote or metropolitan. The marketing Return On Investment (ROI) remains a tenuous balance of advertising spend and sales.
Knowing what marketing and advertising products work best for a particular brand is the first hurdle, next is working out how much to spend. A common method is the ‘percentage of gross revenue’ or ‘percentage of sales’ method. This varies from 1% to 30% of sales revenue, depending on a number of factors.
Businesses with high volume sales, high profit margin products, and/or a well-established product will budget marketing and advertising spending towards the lower end. A new venture or product will need to budget closer to 20% of sales revenue, projected or actual, depending on how quickly the business wants to grow and expand.
New businesses and brands
Building brand awareness is generally 50% of the marketing & advertising budget allocation and product awareness within the second 50%. The introduction of new products may require a marketing budget that competes with established brands in the order of 20% to 30% of projected sales for the first two years.
A good place to start
Marketing drives revenue, particularly when task-oriented marketing with a marketing plan is in place. The structure of the marketing plan depends on the type of product or business. Industry comparison research on marketing and advertising budgets, based on gross revenues, will provide a degree of guidance. Starting out with a budget of 5% of gross revenue is a good start, making future adjustments as necessary.
Conclusion – Evaluate your current spend
The general recommended marketing & advertising budget for most businesses is in the range of 8% to 12% of gross revenue. If you are currently budgeting less than 5% and sales are not as projected, perhaps it may be time to research options that build revenue through brand and product awareness.
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