Whether you run a SFI business or a million dollar corporation, marketing is essential to your profitability and growth. Yet many small businesses don’t allocate enough money to marketing or, worse, spend it haphazardly.
I recently got to know a business that was investing heavily in developing a hip, niche product to add to its already very cool product line. Seemed like a sure winner. However, it quickly became apparent that product development had occurred in a silo, while sales and marketing were off doing their own thing. The result? The week before launch, the business found itself with a fantastic product on its hands, but lacked a go-to-market plan or promotional material for the new product.
Products and services don’t sell themselves. By ignoring marketing until it’s too late, many small businesses risk hitting a brick wall and, quite possibly, failing. A hip and trendy product line shouldn’t rely solely on ongoing product investment and word of mouth.
But how much money should you allocate to marketing? And how can you spend it wisely? Here are some tips that can help you do both:
How to Calculate your Marketing Budget
Many businesses allocate a percentage of actual or projected gross revenues – usually between 2-3 percent for run-rate marketing and up to 3-5 percent for start-up marketing. But the allocation actually depends on several factors: the industry you’re in, the size of your business, and its growth stage. For example, during the early brand building years retail businesses spend much more than other businesses on marketing – up to 20 percent of sales..
This percentage also assumes you have margins in the range of 10-12 percent (after you’ve covered your other expenses, including marketing).
Spending Your Budget Wisely
Knowing how much you have to spend on marketing is critical; even more critical is how you spend it.
This means having a plan. Your small business marketing budget should be a component of your marketing plan, outlining the costs of how you are going to achieve your marketing goals within a certain timeframe.
To get a sense of what your plan should include, take a look at this article from SBA guest blogger: Does Your Business Have a Marketing Plan? Also check out How to Cut Your Marketing Budget and Build Your Brand Profitably.
Once you have developed your marketing plan and budget, remember that it needn't be fixed and inflexible. There may be times when you need to throw in another unplanned campaign or event. At the end of the day, knowing whether it your spending is actually helping you achieve your marketing goals is more important than sticking to your budget.
Marketing plans should be maintained on an monthly/annual basis at a minimum, and revisited if you launch a new product/service, or if the market landscape changes.
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