When you are looking at how to market your business it is always advisable to look at setting a budget for the amount you want to spend specifically on marketing activity. This will allow you to focus your efforts and identify exactly how much return on investment you are getting from each marketing campaign you carry out. In fact setting a budget should be a key part of your overall marketing plan, one of the keys to successful marketing is strategic spending.
A common misconception, particularly among business start-ups and SMEs, is that to market your business effectively you need to invest a lot of money. The truth is that investing a certain amount in marketing activity is wise, but you should always stick to what you and the business can afford. You can always increase the amount over time.
We help a number of our clients manage their marketing budgets and we have identified some of the most effective options when setting a budget for your business:
- Percentage of turnover
This is one of the most common methods used by businesses to set a marketing budget. Depending on the industry you operate in, the average percentage of turnover spent on marketing activity ranges from 5 – 10%.
The benefits of this method are that the budget allocated will grow with your business and a specific amount of money is guaranteed for your marketing activity right from the off. However, should you have a slow year, with a lower level of turnover as a result, your marketing budget will be less. This is a mistake many organisations made throughout the economic downturn. At the time when they should have been demonstrating the value of their products and services to their customers, and differentiating themselves from competitors through effective marketing, many businesses scaled back their marketing budgets, causing sales to dip more than it would have had they ‘marketed through the crisis’.
It’s worth noting that even if you use this method, you should still set you objectives and plan your marketing activity for the year ahead. If you don’t you could overspend before the second quarter on any opportunity that comes your way.
- Per activity/campaign
For this budgeting method to be effective you need to plan your yearly activity in advance, research costs, set benchmarks, and identify ways to measure the success of your campaign all in one go. Planning your marketing activity is always preferable to winging it and you should have an idea of what marketing activity you will be carrying out and when, but if you max out your budget as part of your initial plan and then a fantastic opportunity comes up will you be in a position to take advantage of it?
Perhaps, if you feel that this method is the one that suits your business at the current time, you could plan the majority of your marketing activity but have a pot of money set aside for those unplanned opportunities that will inevitably come up throughout the year? Budgets are a fantastic part of the planning process but there should always be an element of flexibility, as there should be in your marketing plan as a whole.
- Last year’s budget plus a certain percentage/amount
This method takes into account the previous years’ performance and if the business is looking at growth over the coming year. If the next 12 months are looking positive then your will take last years’ budget and adds a bit more on top. For example, if you spent £20,000 on marketing last year, results were good and you want to build on last years’ success and increase your exposure, plus turnover projections are good for this year, you may add an extra £5,000 to make next years’ budget £25,000.
If the increase in turnover doesn’t happen then you could overspend. However if your marketing plan is flexible then you should be able to accommodate any changes as you go along.
- Per product or service
This budget setting technique can be especially useful if your business supplies a number of products and services, or trades in international markets. By treating each product or territory as a separate entity you are able to more accurately allocate costs – for example spending more on marketing to the US market than the UK market because that’s where the majority of your sales come from.
It also allows you to monitor results from your marketing activity in a number of ways which will probably match the methods you will use to analyse sales turnover. You can analyse ROI from marketing across the board, or break it down to focus on results by product or territory.
If you are looking for support for your marketing activity and would like to discuss what we can do with your marketing budget, call Michelle or Kate for an informal chat on 0330 088 9277 or us the contact form here.