Why do you need a marketing budget for your business? How do you determine what it should be? We hear this a lot from companies of all industries and sizes.
Figuring out the sweet spot is a challenge for many businesses, but we can help. Continue reading to learn how to understand marketing budgets so you can get started in the right direction.
Look at What You Spend Now
Many companies have a fixed percentage of revenue devoted to marketing. Others have no clue what they currently spend on marketing in a given year. No matter how much you realize you spend, your business is currently putting dollars toward customer acquisition in some way.
Do you have employees? How about an office building? Company cars? Uniforms? All of these are what we refer to as “touch points,” or any encounter a customer has with your business. They are all the moving pieces that work together to market your brand, just as much as a television commercial, website, print ad, or any other marketing medium.
Every company should have a marketing line on its profit and loss (P & L) statement that calculates each touch point for your company. Factoring those in when analyzing your budget will help you better understand how much to spend on your marketing strategy.
What the Industry Says
From business type and revenue to overall growth goals, every company is unique. The process for developing a marketing budget is no different. While there is no one-size-fits-all when it comes to setting a marketing budget, there are industry guidelines you can follow.
The general rule of thumb is that you should put 10 – 12% of your annual revenue toward marketing. The Small Business Administration advises allocating 7 – 8% of revenues for companies less than $5 million. Is this effective – or even possible – for every business? The answer is no.
“Around 10% is the industry standard, but we usually tell people anywhere from 2 – 15%, depending on what their marketing goals are and what type of business it is,” says Dave Gilbert, President of Stray Media Group. “Typically, in the immediate area we serve – the upper Red River Valley – we see companies that are too conservative with their marketing budgets, at a range between 1 – 5%. This tells us they’re missing opportunities for customer acquisition and overall growth.”
If you have a smaller company, especially one that’s still in the growth phase, your magic number will need to (greatly) increase to create the customer following your business needs to grow in the right direction.
When would it be appropriate to decrease the percentage? If your company is a well-established leader in your industry, this number may decrease because you already have a solid customer base. Even in these cases, a non-existent marketing budget or one under 1% won’t work hard enough for your business’s continued growth. That’s why it’s important to formulate the best plan for achieving your goals long-term.
Finding Your Magic Number
Setting your company’s marketing budget is going to require some initial analysis of your current efforts to calculate what percent of your annual revenue you are already spending. Then, do some serious thinking about what your business’s goals are for growth and what you want to get out of your marketing. This will help give perspective on how to determine your budget.
When working to find that magic number for your company, it’s important to realize that marketing is an essential part of gaining new customers and should be a line item on your P&L (if it isn’t already). A <1% marketing budget won’t get you much. Goals like gaining new customers and being top of mind in today’s competitive marketplace will be worth a lot more to any business.
Let’s Get Started
Are you a progressive company with a strong focus on growth? Hoping to increase customer engagement? Maybe you’re looking to stay top of mind with your existing audience? Regardless of your current status, start by evaluating your overall business goals and plan your budget to match.
At Stray Media Group, we recognize that every company is unique, and we are here to help find your magic number. Our team works with you to create a customized marketing plan that grows your business and increases revenue in prioritized phases to make the most of your budget. Contact us to start growing in the right direction today.
