It’s the time year, if you haven’t already then you might want to start thinking about deciding on a marketing budget for your company. A common question I get asked is there a quick fix or a rule of thumb or even magic formula to setting a market budget. Unfortunately the answers No.
And here’s why if I might quote the bods from www.marketingprofs.com.
‘There is NOT a specific standard percentage. In fact, it would be a real mistake to utilize such a number if it existed. That’s because each category and each market and each situation is so different from others that an average is meaningless. The range is probably from 1% to 60%, or even more. It depends on the nature of the company, the industry, the company’s objectives, what competition is doing, what the marketing strategy is, what you include as a marketing expense, and a dozen other factors.’
Sourced courtesy of http://www.marketingprofs.com/ea/qst_question.asp?qstID=8601
What should you spend?
Although the average of the ones I’ve seen quoted I’d guess to be about 5% sales revenue. Although absolutely useless really, it will depend if you are B2B or B2C, type of product, lifecycle of product, market conditions, demographic and so on. Basically you need a marketing plan. If you do want to find out yours this post from our bods at www.marketingprofs.com is useful road map for you.
Using averages and other people’s percentages is plain wrong! To paraphrase mgoodman, what’s the average colour of clothing worn by Marketing Professionals? It’s probably a kind of sludge brown. Are you proposing to wear such an outfit tomorrow?
Even a comparison between two very similar companies is of no use, because their underlying strategies and tactics are utterly different.
Here’s a better way to arrive at your percentage. What are your company’s goals which marketing is able to influence. They might be set in terms of revenue, profit, margin, market share, new products (Yes, that’s marketing too) or the share price.
Next look at all the tools in the marketing mix and ask yourselves the difficult questions – If I do the following activities, what will their impact be on the company’s goals. How will they add to turnover, product sales, market share.
Next ask how you will measure the impacts and set up a plan which cascades the impact of your marketing and sales activities down through sales, revenue and profit. Do it on a spreadsheet for the next couple of years. It’s not a forecast. Its an aspiration which you want to achieve.
Then cost the activities and see how the cost of the activities impacts the bottom line over the 24 months. Most marketers take fright at this stage because if their forecasts of incremental sales resulting from marketing activities is not set in La-la land, the bottom line goes red (Negative or showing a loss to those who don’t use accountant-speak) for a considerable period of time. Then it rises and after x months, cumulative profits exceed the profits that would have accrued had you done nothing. At that point, your marketing activities are showing a positive return to the company.
Repeat the exercise based on larger and smaller marketing spends. Don’t forget the equations of supply and demand or the Laffer curve – revenues and profits from marketing spend are not in a linear relationship.
Then you’ll have some real life projections of what a range of % marketing spend, whether it’s a % of turnover, profits or projected turnover, could mean to the company. These are your percentages!
Pick the nicest looking one and ask the FD if, were it to work, would the company’s projected cash-flow be able to sustain the expenditure over the period in question. Also ask the FD what the impact would be if the revenue figures failed to match your projections. (Apart from the fact that you’d lose your job, that is!)
Then comes the hard bit. This is not a magic formula which by getting the figures right, it is going to happen. You and the sales team are going to have to make it happen. The projected spend and the projected sales, costs and profits then become the Marketing plan – with full P&L implications. If the company think that it is feasible, you’ve got to make it work, so once its accepted, you have to switch from strategic mode (Your strategy has been accepted) into tactical mode which starts with working out what everyone is going to be doing next Monday onwards. And Tuesday, Wednesday and every day until you hit your figures.
Then you start again!
Good luck
Steve Alker
Unimax Solutions
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