It’s that time of year again. The time of year when you sit down and take a good hard look at this year’s marketing budget, projected vs. actual, to decide what items you need to increase, decrease or leave as they are when forecasting for next year.
And…when it comes to specific categories, like many other small to medium-sized businesses, you may have a hard time trying to project your marketing dollars. Oh sure, you understand all too well that you need to market your products, skills and/or services. After all, marketing efforts have a direct effect on revenues. You’re just not sure how to arrive at a reliable budget figure or where to allocate these funds.
The truth is, there are many ways that small and mid-marketing companies determine a marketing budget. The following are a few – for better and for worse – which are used individually and collectively to come to consensus as to what the “magic number” should ultimately be:
- Percentage of revenue – the average is 2-8% of revenue, but this is highly dependent on the size of your company, the age of your company and your industry.
- Percentage of projected revenue – based on what you expect revenue to be next year.
- Percentage of sales – commonly used in larger companies, this method uses either a percentage of past sales or a fixed amount per unit cost, multiplied by the total number of units sold.
- What we spent last year – based on expenditures of the previous year.
- Other budgetary items – After you determine your operating costs, such as inventory, operations and production, whatever is left over flows into the “marketing bucket.”
- Your competition – The trick here is to figure out what they’re spending and then to increase your budget ever so slightly and hope your revenue increases ever so significantly!
- All Things “New” – Factoring new developments, such as acquisitions, expanded locations, new product/service introductions, or new capabilities that will need to be incorporated into your brand and supported with marketing
- Roll of the Dice – While not recommended, a number of companies will expend marketing dollars literally “on the fly” if a cool marketing tactic catches their eye.
- The “So I can sleep at night” budget – Putting all metrics aside, you determine a budget level that is in line with your comfort level.
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