Investing in marketing and advertising is very important in building brand awareness and beating the big brands. It’s hard for businesses to determine how much to spend on marketing, but there are three simple categories one can follow. To determine the monetary amount, you can take a percentage of either last year’s sales or projected sales.
• For established businesses that are not in a highly competitive market, it’s suggested the business takes 3% of sales and allocate it to the budget.
• If a business is seeking growth and competes in an active marketplace, it’s suggested they increase their investment to 5% of sales.
• For start up companies with no brand recognition, businesses in a competitive marketplace, or businesses who want to grab more share of the market, an 8% investment is recommended.
For example, if a business is in the furniture industry and it has four main competitors and each has about 20% of the market, this furniture brand may want to gain more share of the market and take some of the competitors’ consumers. To do so, the furniture business will want to invest 8% or more for marketing because they are in a competitive marketplace.
If you are under-spending when it comes to your marketing and advertising budget, you can be missing opportunities. If new competitors come into the marketplace, you may fall behind if you are not spending enough on promotions. However, it is also possible to spend too much, leading to wasted money.
Once you establish your budget, it is crucial to determine how to allocate this budget.
We use a successful guide for budgeting for many of our clients.
• 80% of the budget for outreach
• 20% of the budget for development
We consider outreach to be customer touches that include social media, TV commercials, billboards, on hold messages, special events, direct mail, email, and many more. It’s essentially anything the customer sees and comes into contact with. The 20% allocated for development includes the production, agency and creative costs.
You also need to evaluate what goes into your marketing budget. For example, the on hold messages that a customer hears when calling your business would be considered marketing if it’s informative and lists new promotions, etc. Is it truly delivering marketing messages and serving a direct customer therefore it belongs in the marketing budget. However, the background music that plays while customers’ shop at a store should not be listed in the marketing budget and instead should be allocated to the maintenance budget.
Although marketing budgets do not have to be exactly 80% outreach and 20% development, it is essential to strive towards these numbers. By following the 80/20 rule, you will be better prepared to create a strong marketing budget to reach consumers.
Come back tomorrow to read the seventh step to beating the big brands, which is measurement.
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