If someone were to ask you, “What part of your business makes you the most money?” you might be tempted to respond “My sales team,” or “My product designers,” or even “Me.” However, what you should say without hesitation is “My marketing department.”
Marketing is an essential element of doing business; without marketing, news of your astounding, life-altering product would never reach your target audience’s ears, and you would fail to make a single dime. However, few businesses — big or small — trust and respect their marketing efforts enough to properly allocate enough budget for effective campaigns.
This straightforward guide will help you examine your overall revenue and draft an appropriate budget for your company’s marketing needs.
Analyze Market-Wide Data
The perfect marketing budget for your company is completely unique — but observing market trends and comparing your company with others will help you understand effective strategies for allocating money to marketing.
As the economy remains unpredictable, marketing budgets across economic sectors have periodically risen and fallen, but not necessarily in parallel. For example, between 2012 and 2013, the CMO Survey found that marketing-related spending from the business-to-business (B2B) industry dropped, but firms selling products to consumers (B2C) increased their marketing expenditures. In 2013, your marketing budgets might have decreased or increased in accordance with economic trends.
Throughout 2015, B2B marketing budgets have increased to roughly 7 to 9 percent of overall company spending while B2C budgets have stagnated around 9 percent, dropping from previous highs in 2013 and 2014. Of course, these percentages contain a sum total of firms’ marketing expenditures, from online to offline, and they represent averages in economic sectors. Plenty of companies spend over the industry average in an attempt to grow their market shares, and many other companies have budgets below the average, that look forward to modest financial growth in favor of other beneficial developments. Still, it is valuable to investigate what your industry as a whole is devoting to marketing efforts while you develop your own marketing financial plan.
Calculate Your Personal Percentage
Besides economic trends, your budget should be impacted by the longevity of your business — and your average annual income.
Young enterprises, one to five years old, should be aggressive with their marketing tactics. Though these companies are often less profitable than older, more established firms, they rely much more heavily on brand reputation and recognition. A company that devotes more money to marketing is likely to attract an audience faster, gaining the just rewards for its efforts. Thus, experts suggest newer businesses pledge between 12 and 20 percent of gross revenue to marketing.
Meanwhile, older enterprises that have five or more years under their belts have likely already succeeded in establishing brand awareness and cultivating a profitable customer base. Most of the legwork of marketing has already been accomplished, and budgets can shrink accordingly to between 6 and 12 percent of gross revenue.
If you are planning a brand-new small business — one that has yet to make even a modicum of profit — the calculations are a bit thornier. Like younger firms, you likely want to devote a large portion of your resources to marketing endeavors, but exactly what percentage you select depends entirely on your working capital. Because you are still unsure what your company’s annual income will be, you must be judicious with your allotment of your startup funding and perhaps hold off on pledging large sums until you are certain your business is viable.
Allocate Marketing Budget
Deciding how much money to devote to marketing is a major step, but a more complicated issue — and one that has a much bigger impact on the success of your business — is when, where, and how to spend your marketing budget.
Marketing is a diverse field, especially as more consumers take to the unstable and ever-changing Web. Next year, at least 30 percent of your marketing budget should go to online sources, but some firms question whether traditional marketing remains valid so feel free to allocate more. As to how your online budget should be allocated, Forrester Research provides a few industry insights:
- Search engine marketing, including keyword optimization, requires the most significant online spending, capturing about 14 percent of total marketing budgets.
- Display advertising, like banner ads and re-targeting, is the next largest, taking 10 percent of total marketing budgets.
- Social media marketing is relatively cheap, but by no means free: Most companies devote 2 percent of their total marketing budgets to maintenance on social sites.
This post originally appeared on Forbes