Common Ways to Determine Your Marketing Budget

Here’s a super-handy (but hard-to-find) article, highlighting some of the most common ways businesses determine an effective marketing budget. Below are the highlights. The full article is available from LegalZoom.

As the article mentions, here are four common ways to determine your total marketing budget. Once you’ve got this number, it’s time to look into how you want to allocate that budget (print advertising, direct mail marketing, website development, digital advertising, public relations, events, etc.).

A Percentage-of-Sales

This way, the marketing budget will never spin out of control and deplete sales revenue

Allocating a specified percentage of sales revenue is one of the most popular methods for developing a marketing budget. The average allocation usually ranges between 9-12% of the annual budget, while the smallest businesses may go as low as 2%.

If a business is launching a new product or service, advertising and publicity needs are greater, so the percentage will increase. The main advantage to using a percentage of sales is that the marketing budget will increase, or decrease, with the sales revenue of the company. The marketing budget will never spin out of control and deplete sales revenue.

The Dollar Approach

Many businesses simply set a flat dollar amount for their marketing budget. Particularly useful for small businesses, they can base marketing budgets on what they think the company can afford instead of the company’s sales. Picking a flat rate is usually effective for companies looking at a one-time expense, such as specific public relations marketing or a trade show, and not a long range marketing plan.

Defining a flat dollar amount may be challenging in the first year of a business, since there are no past records of sales and marketing expenditures. Many first-time business owners contact others in the field to inquire about their sales and marketing projections, and from there, estimate marketing costs.

Matching Competitors

Another method to create a marketing budget is to analyze and estimate what the competition is spending and copy them. This is another simple way to set a budget, since maintaining costs comparable with competitors keeps the business in line with others in the field. However, this method also assumes the competitors are spending the right amount and have a comparable business.

Obviously, make sure to account for the proportional revenue of your competitors… unless you happen to be Apple.

If you’re a mom-and-pop organization competing with Wal-Mart, obviously you couldn’t copying Wal-Mart’s marketing budget. When using this method, the revenue of a business should still be taken into account.

Marketing Plan Objectives

Nevertheless, many believe this method is the most logical for determining a marketing budget.

Often considered the most effective budgeting method, this method uses the objectives in the marketing plan to determine the marketing budget. The budget is developed by estimating the expenditures needed to achieve the desired marketing objectives.

Although this method of budgeting is very realistic as to the needs of a company, it is often limited by available monies, as the desired budget may exceed the monies set aside for a given year. Nevertheless, many believe this method is the most logical for determining a marketing budget.

A Final Thought

Whichever approach is taken, a formal budget will help define the marketing needs of any company. Establish a detailed marketing budget prior to the start of each fiscal year, and annually make any changes to parallel the growth or decline of the company. Monitor marketing costs and results throughout the year to better determine the effectiveness of your budget.

Manage your marketing well and you just might find yourself in the enviable position of figuring out how to manage high revenues.

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Common Ways to Determine Your Marketing Budget
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We all hear a lot about “best practices” but it’s thoughtful analysis of research data that’s driving marketing. There’s tons of it our there, but most is buried in boilerplate or hidden behind long forms. Cometrics is here to change that.
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