Marketing budgets: how much should you spend on marketing for growth in business?

You’re probably very good – or even great – at what you do. There’s no doubt that you have the skills and ability to provide whatever services or products your company was established to deliver.

Unfortunately, there’s also a high probability that your company might not reach its full potential in growth in business because good opportunities are missed. That’s because you can’t sell to would-be customers who don’t know about you.

Previous posts have discussed the benefits of referral-based marketing. And, of course, you should always be on the alert for chances to sell more to current accounts. But new customers, with little or no relationship with or knowledge of your firm need to be pursued, too, if your company is to thrive.

A well-planned marketing program is essential for any company with aspirations to grow. But marketing is not free. (You have to spend money to make money). And what qualifies as a reasonable marketing budget? How can you be sure you’re not spending too little or too much?

Fortunately, while every company’s situation is different, there are guidelines in place that can provide starting points for putting a credible plan in place.

How much should you set aside for your marketing budget?

Marketing expenditures tend to vary by industry, and also within those industries. In retail, Walmart spends just .04% (4/10 of 1%) of gross sales on marketing. But, for Walmart, the sales volume is so large that the actual dollars spent are substantial. On the other hand, Macy’s, a high-end retailer, spends just over 5% of gross sales.

In other industries, car dealers spend 2½% to 3½% of sales on marketing budgets, while liquor companies spend about 7%, and packaged food companies about 10%.

But what about you? Many small business advisors recommend that you spend somewhere between 5% and 15% of annual sales on marketing. Exactly how much depends on several factors:

  • How long have you been in business? If you’re still getting established, it might be wise to spend 10% or more on your marketing budget. When you’re new, if you don’t blow the horn, there’s no music. But if you’ve been around and have a solid customer base, you can probably spend less.
  • Are you a high margin (fewer sales, but significant profit on every sale) or high volume business (many sales, but lower profit on each sale)? Think of high margin firms as home run hitters, while high volume companies hit lots of singles. Generally speaking, high margin firms tend to spend more on marketing because: a.) they can afford it, and b.) there’s potentially a great return on each marketing dollar.
  • What industry are you in? You probably have a pretty good idea of what your competition spends on their marketing budgets, which is a benchmark for you.
  • What can you afford? There are more options than ever for bringing your message to your target audience, but don’t spend yourself into trouble.

Bottom line: Assuming your company is still in a growth stage, your competitors are making their presence known to potential buyers, and you have enough cash flow to fund a serious marketing effort, plan to spend around 10% of gross sales on activities relating to marketing and promotion.

Making your marketing budget work

After you have an idea of how much you will spend on getting your message out, the question becomes one of determining where the money can be spent most effectively.

The key to smart allocation among marketing options is to start by thinking about exactly whom you want to reach, and what media they’re likely to use.

Traditional advertising options that still work in many industries include:

  • Print (Newspapers, magazines. Familiar, but expensive and hard to track.)
  • Radio and/or Television (Cable TV can bring highly-targeted audiences)
  • Direct mail (Expect only a 1% or 2% response, but it’s very cost-effective)
  • Trade show booths (Can be lucrative when leads are followed up quickly)

But, remember, some of the most essential marketing tools today are also some of the most cost-effective: Your company’s website and various social networking options can offer a lot of bang for the buck.

For continued growth in business: track, evaluate, and track again

No matter how you decide to allocate marketing resources, it’s important that you track the performance of each campaign closely to see how it provides growth in business.

The easiest way to do this is to find out how every prospect or new customer finds you. Include the question on your website’s contact form, and ask each time a potential customer calls.

If you’re getting more customers through your website, keep spending your time and resources there. If customers are finding you from a newspaper print ad or a direct mail campaign, then do it again and again and again. Spend more there, and less on the under-performing options for higher rates of rates of growth in business.

And, remember, marketing doesn’t stop when the sale is made. Providing an excellent customer experience, which involves putting systems in place so that customers get a consistent, high quality experience will ensure they keep coming back.

MP Star Financial’s invoice factoring services can help ensure you have cash flow needed to run and grow your business. Call MP Star Financial for more information at (800) 833-3765, extension 150.

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