Tips For Determining Your Marketing Budget
It can be an overwhelming task to determine your yearly marketing budget, especially when the digital marketing revolution is considered. This is especially true for startups or small businesses that know they need to spread the word about their brand but are lacking in the knowledge and resources needed to compete effectively. Marketing is still an effective way of increasing awareness of your brand and driving sales. Although it is free, you should not just use social media as the only platform that you use for your company’s marketing efforts. It is necessary to invest in a broader range of options in order to increase your customer base and grow your business.
Playing with the Percentages
However, it is also important to not spend a lot of money on the wrong things. So how can you determine the amount that you should spend? Although there is no definite number – for small business marketing the standard percentage for allocations ranges from 8 to 13% of total gross income. Businesses with high market share and with great reputations can afford to spend less. Businesses that have been in existence for less than 5 years need to increase the amount of their marketing investment in order to make any kind of impact on their industry. Your company’s size, in addition to your current sales amount, also will influence your final marketing budget allocation. Whenever you are using a percentage model in order to determine your budget it won’t ever be a fixed amount, since it will continue to expand as your business does. Also, it helps to nip in the bud any potential overspending. The method only should be applied when your current margins are over 10 to 12% (This approach wouldn’t be ideal if you are currently operating at a loss).
A fixed budget method could also be used where you come up with a figure and then devise a strategic marketing plan to maximize the resources that you currently have.
Learn from Your Competitors
It is essential to research the competition to determine what their marketing budgets are (or you can try asking business owners who have businesses that are of a similar size to yours, how much they spend). Take a look at the marketing efforts of your competitors and how they link to their advertising expenses. Just make sure you are comparing apples with apples rather than looking at an industry giant when you happen to be a small business. Always keep in mind that before deploying a marketing campaign you need to have researched your target audience and segmented it, so that you know precisely who you are “speaking” to and where they can be found.
Calculate Your CLV
A key metric that you need to understand before determining what your final marketing budget is going to be, is your customer lifetime value (CLV). That figure refers to how much each of your new customers is worth to our company over the long term. Once you know what that figure is, that can help you to determine how much money you are willing to spend on your marketing to obtain new customers and how much to retain your current customers. There are a number of different complex calculations that can be made in order to arrive at that figure. These include such elements as customer’s average lifespan, customer value, purchase frequency, and average order value. Once you know what your CLV is, you will be able to accurately forecast what your marketing spend should be so that you won’t ever spend more on obtaining a customer than what their lifetime value is.
Showing Up In All Of The Wrong Places
The most significant calculation that you will need to make is what your return on investment (ROI) is for the marketing efforts that you choose to do. Whatever you spend on your ads will have be bring in double the amount in revenue, otherwise that means you are spending too much money on your advertising, in all of the wrong places. It is essential to evaluate the challenges and successes of all of your marketing campaigns in order to determine what is really working. Once your conversion creating initiatives are repeated, you can increase your ROI. When the data from your marketing efforts is analyzed, it can help you predict next year’s marketing spend rather easily.
How Much Of A Risk Taker Are You?
At times businesses make the decision to use an aggressive marketing strategy which requires a large investment, but potentially has big rewards associated with it (without needing to break the bank). In order to achieve revenue growth, you need to have a decent marketing budget along with an effective strategy. It is a difficult but necessary task. If you spend only a small amount on your marketing, then your product may be invisible, but if you spend too much money you won’t have any ROI when your campaign ends. Whatever amount of money you decide to spend make sure that you testing and analyze your data constantly so that you can make improvements. You will need to continue to tweak your campaigns in order to eliminate low performing campaigns and build on your successes.
If you are currently struggling on how to create a strategy with your available resources or determine what an appropriate marketing budget is for you, we can assist you with seeing the forest for the trees. Call us today to see who we can help you with your critical marketing needs.