Determining your marketing budget
How to know how much to spend on marketing activities
Developing your marketing budget is an important business decision and process every company needs to go through and review at least once a year.
It's a question I get all the time: "How much should I spend on marketing?"
While the answer differs depending on the business, no matter what industry you're in, you need to set aside funds each year to maintain your current business and/or grow your business. Most people want to grow their business, but for some maintaining their existing business is all they can handle without generating new overhead. Either way, if you're not investing in marketing, you're likely going to lose business year over year from standard customer churn rates. Your marketing efforts will replace customers you lose throughout the year and if you do it right and invest enough, bring you new customers to grow your business year over year.
So how much should you spend?
Here at L2 Digital recommend at least 10% of your gross sales for business growth, 15% for an aggressive growth strategy. Just as important as how much to spend, is what you're spending the money on. Knowing how to best utilize the many marketing channels to produce the best results for your business is something that should be thoughtfully considered.
According to website, Vendux, "The U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for marketing and advertising if you're doing less than $5 million a year in sales and your net profit margin – after all expenses – is in the 10 percent to 12 percent range."
The Wall Street Journal looked at the differences between industries in their marketing budgets and found on average marketing makes up approximately 11% of a company's budget. "Marketing budgets now comprise 11 percent of total company budgets on average, up slightly from 10.4 percent... Consumer packaged goods companies allocate by far the largest percent of total company budget to marketing (nearly one quarter), followed by consumer services, tech software/biotech, communications/media, and mining/construction. Companies that spend the smallest portion of their budgets on marketing include transportation, manufacturing, and energy."
The Big Picture
Knowing how much to budget is important, but effectively using the funds to generate the best ROI for your company is even more important. That's where companies like L2 Digital play an important role as not only an expert advisor but strategists on communication, branding, visual identity and more. The right amount of money but the wrong message on the right channel will not lead to success. You need the right amount of money, the right message, utilizing the right channels to yield the results you want. I can't emphasize enough the importance of putting the time and investment in upfront to solidify your messaging, branding, target markets, customer pain points, and visuals together so you can be effective in your marketing efforts.
Contact us here to get the right marketing conversation started.
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