Many business owners are unsure what they should spend, and what they can afford to spend, in order to market their products or services to the clients they need. Very few companies can rely solely on word-of-mouth, even in a small community, but managers can be reluctant to invest money into the business even with direct evidence of solid ROI.
Especially for a business in the beginning stages, budgets can be tight and revenue may not be steady enough to set a percentage to spend on marketing. Although it may be tempting to only utilize “free” social media networks to spread the word about your business, we offer the following recommendations to determine what percentage of your revenue you should allocate to your marketing budget:
- Consider the competition. If your competitors are outspending you and subsequently reaching clients before you, your company may need to increase your marketing budget to more aggressively capture market share. So this is where it makes sense to see how and where companies with similar products or services are investing their marketing dollars (ie., digital, social media, print media, etc.)
- Marketing budgets vary greatly depending on the industry, the customer and the state of the economy so it pays to do your research. The CMO Council reported in 2011 that consumer-focused companies (B2C) averaged around 17 percent while business-focused companies (B2B) spent roughly 11 percent. Major consumer companies such as food manufacturers spend as much as 35 percent of their budgets on marketing while professional services run in the 8-12% range so if you are a $5 million law firm, your competitors may be spending $46,000 per month on marketing.
- Begin with the end in mind. How much do you want to grow? Are you looking to maintain or build your business? Remember that you have to spend money to make money, but you have to spend it wisely and depending on the size of your company. Both the Counselors to America's Small Business (SCORE) and the U.S. Small Business Administration (SBA) advise that a proper marketing budget should be somewhere between 2% and 10% of sales, noting that budgets for B2C, retail and pharmaceuticals can exceed 20% during peak brand-building years.
Ready to make this investment in building your business? Call us today for a consultation to discuss how we can develop a marketing plan that meets business goals while optimizing your budget.