While there’s no one-size-fits-all formula for calculating how much you should spend, BroadBased can offer you some guidelines. One thing to note is B2C (business-to-consumer) budgets are generally higher than B2B (business-to-business) because reaching the much wider B2C audience typically involves higher costs for advertising. B2B budgets are often lower due to smaller target audiences and sleeker niche-marketing solutions.
The Service Corps of Retired Executives (SCORE) and the U.S. Small Business Administration (SBA) define the variable for a proper marketing budget to be between 2 percent and 10 percent of sales, noting that the total for B2C, retail and pharmaceuticals can exceed 20 percent during peak brand-building years. As an example, at 5 percent of gross, a company with $3 million in revenues would consider allocating $150,000 a year for marketing.
Nailing down a number
Although many companies determine their marketing budgets as a percent of gross revenue, that doesn’t mean they pick an arbitrary number within the recommended range. So how do you arrive at a percentage that’s right for you?
Often, the percentage is determined by industry and size, so it’s smart to reach out to industry associations for benchmarking information. Additionally, many CPAs subscribe to research software and may be able to help you with your industry information.
What items belong in the marketing budget?
The fictional $150,000 budget set for a company with $3 million in revenues might sound like a lot initially, but not when you consider all that goes into it. The budget will support in-house marketing salaries, agency and public relations fees, media buys, printing, mailing, postage, trade shows, memberships, website, and more. The costs add up quickly. SCORE provides a handy worksheet on its website to help you tally the numbers and make sure you aren’t surprised by something you overlooked.
Regardless of how you arrive at the final figure for your marketing budget, it must be one that realistically supports your sales plan and generates an appropriate return on investment. Depending on corporate goals, your budget may be 4 percent this year and 8 percent next year. And if you are new to the marketplace, you have to spend more aggressively to establish your business objectives.
CEO Jan Hirabayashi has more than 10 years of experience designing marketing plans for clients with budgets from $50,000 to $2 million. Email Jan to collaborate on your 2017 marketing plan.