3 Keys to Understanding Marketing Budgets
Ahh…the age-old questions, “Why do I need a marketing budget, and how do I determine what it should be?” We hear this a lot from companies of all industries and sizes, ages and market share. Figuring out the sweet spot can be challenging, but we can help. Take a look at these three keys to understanding marketing budgets to get you started in the right direction.
Many companies have a fixed percentage of revenue devoted to marketing, while others have no clue what they currently spend on marketing in a given year. Whether or not you realize how much you currently spend on marketing, your business is in some way, shape, or form currently putting dollars toward customer acquisition.
Do you have employees? How about an office building? Company cars? Uniforms? All of these are what we refer to as ‘touch points,’ and they are all moving pieces of your business’s marketing budget. Touch points are essentially any encounter a customer or potential customer has with your company or brand.
For instance, let’s say you own a pizza pub and one of your employees goes above and beyond to make sure a new customer has the best experience possible. That customer’s positive encounter with your brand will likely bring them back for repeat business, and motivate them to tell their friends and even become an advocate for your brand by giving a great review on Yelp or sharing a food photo and checking in on Facebook.
Now let’s imagine you own a plumbing business with company vehicles that are rusting all over and always filthy, and the drivers tend to cut people off when driving. When people that could have been potential customers encounter a poor experience with your brand, the chance that they will ever think of you the next time they need plumbing service is slim to none, and they may even go so far as to tell friends or coworkers about their bad impression of your company.
All of these pieces 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 P & L that calculates each touch point for your company. Factoring those in when analyzing your budget will help you understand more clearly what you are actually spending each year on marketing.
From business type and revenue to overall growth goals, every company is unique and 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 and suggestions that should be targeted.
The general rule of thumb is that 10-12% of your annual revenue should be put toward marketing. The Small Business Administration advises allocating 7-8% of revenues for companies less than $5 million. Will this be 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 much more conservative with their marketing budgets, and they range between 1-5%.”
If you have a smaller company, especially one that’s still heavily in the growth phase, your magic number will need to (greatly) increase in order 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 strongly differentiated, well-established leader –Apple, for instance – this number may decrease because you already have a solid, loyal customer base. Even in the case of monster companies like Apple, a non-existent marketing budget or one under 1% won’t work hard enough for your business, so it’s important to think long and hard about the best plan for achieving your goals.
Ultimately, setting your company’s marketing budget is going to first take some analysis of your current efforts to calculate what percent of your annual revenue you are currently spending. Then you need to do some serious thinking about what your business’s goals are for growth and what you want to get out of your marketing, to help give you perspective on where your budget should be.
When working to find that magic number for your company, realize going into it 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, and goals like new customers, growth or expansion, and being top of mind in today’s competitive marketplace should be worth a lot more to any business.
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 company status, start by evaluating your overall business goals and plan your budget to match.
Feeling overwhelmed? Let us help. At Stray Media Group, we recognize that every company is unique. We can customize and prioritize a marketing plan that fits your budget and helps reach your goals. Contact us to help you start growing in the right direction today.