How much should you spend on marketing?
As a marketing consultant, the most common question people ask me when they call is, “What’s it going to cost?” Which is kind of a funny question, because although I can generally ballpark the cost building a marketing or business plan, what people really want to know is “What’s it ALL going to cost…as in…ALL this marketing stuff I should be doing…what’s THAT going to cost?”
But really, how do I know whether they want me to help them get one or two new clients, or make their brand famous around the world? While planning costs will vary somewhat, the implementation costs are what’s really different.
Now, some marketers will tell you there should be a rule about it – like 3% to 7% of revenues. And that’ll work for perhaps maintaining a level of sales for a well-established business.
But a lot of clients are looking for big growth – as in, “Let’s see if we can double ourselves in the coming year” – or more. Do you think 7% of existing sales is going to do it? Probably not. Furthermore, if a company is new, and has no sales to speak of – does that mean they should spend 7% of nothing? Of course not.
Starting from Scratch
Here’s an example. One of my clients recently realized they essentially needed a whole new client base – they’d been relying on one big account for too long, and that big account was looking shaky.
They knew they needed a major change to make their sales targets – so we put a business plan together – and then they went out and convinced an investor to lend them a large wad of cash which they invested entirely in advertising.
Yes they really took a chance – but it paid off – many times over.
The cost of the campaign worked out be about 8% of the initial sales it brought in…mind you, those new customers will be customers for years to come, so the real cost vs. sales results is lower in the long run.
But they had to dive in first, and the sales came after.
Cash versus Effort
One of the other reasons that rules do not strictly apply is that spending money is not the only way to generate sales. A business really has two key marketing resources to spend: money and time. If the owners of the company are able to spend their own time doing selling or networking – and especially if they are truly committed to doing so, the time they invest may overcome a non-existent marketing spend.
This can be even more true in a business-to-business environment where personal relationships make a critical difference in winning the business.
However, relying on personal relationships may not be completely sustainable in the long run. I have met countless companies over the years who have spent almost nothing on marketing – but when a key staff member leaves, suddenly the flow of new clients coming in the door stops, and they need to address their lack of marketing.
The Answer to Setting a Marketing Budget
So the answer to the “what’s the marketing going to cost” is this: Invest whatever money you can get your hands on, and base it on the sales you are aiming for or what you can reasonably expect to achieve with that level of investment.
If you’re committed to selling (and if you have a strong sales team, not just one great rainmaker), you may need less marketing budget. But if sales isn’t a strength of yours, consider a loan, or cashing in something you don’t really need – because no amount of “but we’ve got the best (blank) that ever existed” will just make sales walk in the door! The “If you build it, they will come” philosophy only works in the movies.
After all this, if you need a very loose rule of thumb, I believe that a growing business should expect to spend 8% – 10% of what they aim to make in revenue in the upcoming year. But that can still vary widely based on your industry and profit margins. 10% may be far more than all your competitors are spending. Or it may be less; if someone else is willing go for 20%, then you might need more cash to catch them in the long run.
Rather than decide on a budget number first, it actually makes more sense create an upper-end ballpark, but price out the things you really need (e.g. a logo, website, promotional materials, advertising, etc) and see what that’ll cost you. For more information, check out what the different kinds of marketing channels cost – also known as a promotional mix.
I advocate making your own rules about what you should spend, and what you need to make in revenues (and margin) to ensure it’s worth your while. If you spend wisely – and the marketing works – you can spend as much as you want, assuming you just keep on growing. The cost really is up to you.