Breaking Past The Budget Barrier – Marketing Budget 101
Mark Hale ‐ November 12, 2013
A topic that is of great interest to most businesses is how to get more people to buy their products or services. Three factors affect your ability to get more business – people, product and promotion.
Of the three, promotion has the ability to affect a business positively or negatively the fastest. Products and services in most industries today are very similar so there is little that is totally different from the competition. People are always key to a successful operation. If you have competent people working with you, you have a definite competitive advantage. If you have a good product and good people then it comes down to promotion. The business with the better promotion wins. But marketing and promotion is expensive, so how or where can you find the money to promote like you know you need to?
Maintaining a marketing budget can be tough. If you are not promoting yourself regularly – you are essentially “trying to sell a secret” and you are losing business. Having said that, when it comes to promotion, having the money to do so is obviously important.
Many businesses do not have a marketing budget per se or worse have no marketing plan. At least when you have a plan there is a tendency to find the money to support the plan.
The definition of the word budget is the amount of money needed or available for a purpose. Your purpose is to get more customers. How much will it take to get the customers you need to take your business to the next level? I have found by experience, to generate sales, it takes more money and effort than you think.
How to Create a Marketing Budget For Sure Fire Growth
There are basically three ways to create a marketing budget:
1. The static method. You simply decide an amount you will spend on advertising. This is a static method because it does not allow for flexibility to create growth beyond a certain point. If you mis-guess the amount needed and due to competitive or economic forces it takes more to move the needle, your sales will stagnate or worse. With this method the number chosen is usually arbitrarily picked out of the air or set by some bean counter type who is simply crunching numbers to make the bottom line look good. Marketing is an easy target to cut when business slows down, and when you cut marketing and promotion you are making a decision that you can sell a secret. The secret you are selling is your business. Businesses who use this method of budgeting usually are the first ones who cut marketing and promotion when things get slow. Henry Ford once said, “Cutting back on marketing to save money is like stopping the clock to save time.”
2. Budgeting by percentage of sales. You set a percentage of your gross sales to spend on marketing and promotion. What percentage should you use? You will have to work that out. You may have to try different percentages until you find the number that allows you to create the growth you want in your industry. I can tell you that in today’s economy the percentage for most business models is north of 10% of your gross sales.
3. The spray and pray method. This method is akin to playing chicken with a Brahma Bull. You may get lucky and dodge the horns a few times but the bull will eventually win. The business that operates this way usually has no plan, no marketing budget and is rolling the dice with their advertising and promotion. They usually become the victim of some slick magazine or bathroom ad sales person. Eventually they run out of mediums to advertise in because they have tried them all and they did not work for them. What did not work was not the advertising but the guy’s message. He either spent a lot of money promoting the wrong message or was gun-shy and did not spend enough money promoting the right message.
Which of the above methods of budgeting your advertising is the best? You will have to decide that for yourself based on your business. I can tell you, of the three methods, number two gives you the best chance of winning because it is a model that allows for growth. As your sales increase so does the amount you spend on promotion, so your business gets larger and you have more money to reach more people. For mature industries with little or no competition, method one will work OK. Method three above will eventually drive you into apathy on advertising and promotion.
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