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Original post : Feb 7, 2013

Setting a marketing budget

Setting a budgetI know that most companies will not have set a marketing budget for the coming year. They may have a very clear idea of all their other costs - rent, stock, etc. - but when it comes to marketing they carry on regardless believing it is better to leave it open-ended.

I don't know for sure whether this behaviour results in higher or lower expenditure on marketing, but I strongly suspect it could result in less effective spend.

Why is it so hard to set a marketing budget?

  1. Is it fear that putting a figure down commits you to a spend? Or worse, gives someone else the idea they can spend it for you!
  2. Is it ignorance - not knowing how much to allocate?
  3. Or is it blind hope? Hope that the revenue growth targets will somehow deliver themselves without any investment?

None of these are good reasons for not identifying a figure to cover marketing. The truth is that setting a budget does not commit you to a spend, information is available to estimate likely costs, and hope is just too unreliable!

Investment or cost?

Many's the time we've argued in this blog that marketing budget is an INVESTMENT not a COST. If you want to achieve your revenue growth targets (I'm assuming here that you do have business targets and that you want to grow) then you will absolutely need to identify the investment needed to deliver that growth.

Extra sales is usually recognised by businesses to require investment in extra stock, staff, premises, vans etc. in order to deliver the profit but, somehow, it is not similarly acknowledged that you may need to spend to attract and acquire a customer in the first place!

Is it really reasonable to expect growth without investment? Isn't it better to be in control - knowing what you can afford and what you expect in return? Of course, not all marketing effort requires external expenditure, but it's likely you will need to spend something to support your business activities.

How much should you spend on marketing?

Unfortunately there is no simple mathematical formula because it depends lots of factors: the maturity of your business and the market, the size of your ambition and the other (free?) resources you have available to you. In Chartered Institute of Marketing discussions I've heard figures of between 2% and 10% of revenue mentioned as standard, with up to 100% for new launches. And major one-off expenditures such as new websites can often be treated as exceptional additions.

My preference is to start with a target increase in revenue and identify the total you would be prepared to spend to win this business - if you have recurring income then make an assumption about the average lifetime revenue from those customers. You are essentially answering the question: what is an acceptable investment in marketing/cost of acquisition for this business?    

Then, putting the budget to one side, you can decide the best plan of action to target and acquire those customers. And you can make assumptions on the marketing cost.

If your total cost required is less than you are prepared to spend then, bingo, you can get your plan underway. If it is more then back to the drawing board. You may be able to come up with less expensive options or you may need to adjust your expectations on results.

Either way you are still not committed to the spend but you are better informed and in a much better position to manage your marketing effectively. You are in control.

Why not have a go now?

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