How much should you spend on marketing? It is likely this question is the most asked question in the history of business. There really is no real answer for this question. The solution is different for every business. There is no magic number.
Before delving into the various acceptable methods for determining how much a business should spend on marketing, it is vital that the following points are clear:
- An exact amount matters less than having an amount in mind. Basically, establishing and tracking a marketing budget is more important than coming up with the right figure initially. The right amount should evolve with time and necessity.
- It is possible to budget appropriately and still get burnt. Having the right budget means very little if the money is spent ineffective advertising. Marketing plans should always be tied to a strategic marketing budget.
Creating a sound marketing budget isn't rocket science. Some of the most effective ways to establish a marketing budget involve the following:
Get Marketing Revenue from Gross Sales
This method involves designating a portion of the proceeds from gross sales, and earmarking those funds for marketing expenses. Large businesses with millions of dollars of revenue generally reserve 2-8% of gross sales. Smaller businesses with less revenue should reserve 7-8%.
Follow Industry Standards
Many industries have established acceptable standards for determining what is appropriate to set aside for marketing expenses. Some industries require less marketing efforts, while other industries are highly competitive and require more. For example, retail establishments may require 4-10% of net revenues to be set aside for marketing, while credit unions reserve 2-5% of their assets. The standard for any industry is easily discovered through a simple search engine inquiry.
What is the Lifetime Value of the Customer?
The idea behind this concept is simple, but determining a value can be complex. Choosing this method requires accuracy, but it provides insight into the importance of maintaining a positive customer relationship. Essentially, this method requires a determination of the amount of profit on average, that a customer is worth in order to determine how much should be invested per customer acquisition.
Goal Driven Campaigns
This type of marketing campaign blends concepts from other techniques. With this method, identifying measurable goals is the primary focus for determining a marketing budget. The plan can be based on the number of the new clients, percentages of revenue, or a targeted number of sales. No matter what the plan is based on, the marketing budget is developed to achieve specific goals. Once again, this type of approach isn't effective unless the equations involved in the plan are accurate.
It may be helpful to consider the additional marketing costs that aren't usually factored in. Marketing costs do involve some overhead. Factoring these costs into the final figures is helpful in determining a more accurate figure for budgeting purposes.
The short answer to how much should you spend on marketing is that you should spend as much as it takes. Determining how much it really takes is the real trick for any business.