Statement: We have never really budgeted, invested or taken a look at marketing and advertising. But now things have changed. The population has moved and our customers are moving towards internet based research, e-commerce, and we need to change with the times. How much should I budget for marketing? I mean really!
The baby boomers have retired, which is the age demographic group that relied heavily on referrals and word of mouth referrals. We now need to do something different with our business to stay in business in 2015.
First let’s look holistically at our business model, our geographical location and our customer demographics. Many small business owners view MARKETING, Human Resources, Legal assistance, Compliance, and training as luxury expenses. Often times these expenses are only added to the business operations when a major problem has occurred within one of these categories or the business is running the risk of failing. Marketing, HR, Compliance, Training, and Legal Assistance for a small business are ANYTHING BUT luxury expense items. They are the most critical components to effectuating a successful business plan. So, let’s discuss How much should I budget for marketing!
Successful, established, North American based businesses budget and spend 4-6% of their annual revenue in advertising. Company’s like McDonald’s, Starbucks, Walgreen’s, Walmart, mine and your successful peers. What did I emphasize and bold type face established? Established businesses are defined as businesses that have created an executed their business plan correctly, which in large part includes a well strategized and executed marketing plan. If your business has not completed those components even if you may have been in business for many years, I would still categorize your business as a startup. You are a startup because you most likely have never realized your full potential in business with sales and profitability. Startup businesses will budget and spend upwards of 10% or more of your revenue| start up capital | or borrowed capital to brand yourselves as well as generate new client leads. Where you all will fall within your 4-6% or your 10% or more depends on the type of industry your business trades in, your location demographics, and complexity around your business model. If your business model trades within a competitive business space such as a: Lawyer, Dentist, Electrician, Construction, Plumber, your marketing spend will need to be budgeted at the high end of the ranges given. If your business sells obscure, niche, or hard to find items, you would be able to budget a marketing spend at the lower end of the ranges given above. Now that we have discussed How much should I budget for marketing, let’s discuss how to make this topic a big more palatable.
Budgeting ANY expense in business is formulated as a percentage of gross sales and included in your budget as a line item on your P & L and your budget. I have always told my leaders in business to “solve the right problem”. If your Labor, Cost of Goods Sold, Marketing, Office Expenses are too high, then you should control the expenses that are the outliers. Many of us want an A office building, at the top floor, with an ocean view, however, if that rental payment causes your rental expense on your P&L to report over 16%; that is typically not an affordable rent expense. If our budget requires us to have a home office, or rent in a B or C office building to ensure we stay between 12-16% of sales- that is the answer.
If you make it a habit to “solve the wrong problem” in business and cut expenses within the wrong line items of your businesses P & L you could very well negatively affect your top line revenue, customer experience, profitability and you could start the downward spiral of death for your business. Lastly you might be saying to me “We’ll I don’t have the money that McDonald’s, Starbucks, Walmart, and Walgreen’s does” you’re probably right. The key differences though between them and YOU is, is that when they were a small business like you are today, they executed their business plan correctly. They budgeted marketing at 4-6% when times were good and when times were lean. In large part, those decisions when they were small, allowed those companies to be who they are today. Please send us a message if you’d like to discuss this topic: E: firstname.lastname@example.org | P: 321.255.0900