How much should you allocate to marketing?

Cognite MarketingDigital MarketingMarketingMarketing Tips

(Updated: 10 June 2022)

As a business owner, you must walk a fine line between spending too little on marketing and spending too much. Marketing in business can be seen as a double-edged sword, companies chose to cut back on marketing to reduce costs during slower months or when they have too much business flowing in, overwhelming their stock and staff.

In this article, we will explain why cutting back on marketing in both scenarios are bad moves to make and how having a marketing budget in place can help your business achieve its marketing goals.

Establishing a marketing budget

As there are many costs associated with starting a new business, business owners try keep their expenses to a minimum, whilst trying to grow their reputation. The biggest mistake these owners make, is not marketing their brand, product, or services to their target audience, which can lead to low company growth and low ROI. With each industry being vastly different, there is no copy-and-paste solution when it comes to their marketing – what works for your competitor, might not work for you.

A marketing budget typically covers the cost of advertising (print or online), promotion (print, online, or through events), and public relations. The size of your marketing budget will vary based on the size of your business, monthly or annual sales, competitor advertising etc. For example, in some industries, marketing budgets can range from 5% – 12% of monthly turnover.

There are 4 methods you can use to determine your marketing budget:

  1. Percentage of Sales
    This method according to Legal Zoom, is considered one of the popular methods for developing a marketing budget. With an average allocation ranging between 9% – 12% of the annual budget, whilst smaller companies may go as little as 2%. The advantage of using the percentage of sales method to develop a marketing budget, is that your budget will increase, or decrease with the sales revenue of the company.
  2. Assigning a Flat Amount
    This method can be particularly useful for smaller businesses, who are monitoring their expenses closely. A company can set a flat rate for specific marketing material, marketing objectives, or functions to drive awareness, or to boost a specific product / service for a set period of time.
  3. Matching Competitor Spend
    This particular method can be beneficial for some companies, as it can help business owners decide on a flat rate for their marketing budget based on what competitors are spending. However, this may not be the most practical, seeing as competitors may be in the same industry, but may not be direct competitors. For example, a family-owned deli or café cannot compete on the same level as a corporate chain.
  4. Marketing Objectives
    This method can be considered the most effect approach, seeing as business owners can establish set marketing objectives they would like to achieve, and allocate a budget to these set items.

A more established company has a little more to work with. You have more statistics to work with, you already have database of existing clients to market to, and you probably have a more stable cash flow to work with. Even though you have an existing customer base, you will want to introduce yourself to new potential clients. Introducing your brand to new clients isn’t as important for an established company so you could average your marketing budget at 5-12% of your overall gross revenue. Just don’t forget to keep in touch with your existing clients.

Where to market?

You will need to do a bit of research for your industry. Consider what your competitors are doing as this will give you a good starting point. For example, a photographer being on Instagram and Pinterest is a good move, but an accounting firm would work better on Facebook or LinkedIn. There are many places that you could focus your marketing, writing a list of the ones you want to use is probably a good idea. Make sure to put them in a list that is sorted in order of priority.

Some good ideas to think about:

  • Google Ads
  • Social Media Advertising like
    • Facebook Advertising
    • Pinterest Promoted Pins
    • LinkedIn Advertising
  • Social Media Platforms
  • Content marketing like a blog on your website (you could also share this across your social media platforms to generate traffic on your website)
  • Good SEO and on page SEO optimization will help your website rank higher in search pages
  • Physical Marketing like
    • Outdoor Signage
    • Vehicle Signage
    • Posters
    • Flyers
  • Email Marketing (Remember to get explicit permission before adding emails to your database)

Once you know where you want to start, carefully consider which avenues will present a higher ROI than others. If you have a restaurant then handing out flyers locally would have a higher ROI than launching a Facebook advertising campaign. But if you are more web-based, then online advertising is a better starting point.

Be realistic about what results you hope to yield from your marketing. Printing 5000 flyers won’t bring you 5000 customers, having 500 people click on a Google Ad doesn’t mean that 500 people will buy from you. If you can afford to hire a professional to do all of this for you, then do it! Just as you are a master of your craft, they are masters of theirs. They have been in the business of marketing for a long time and will have a better idea of what will work and what won’t. While they work on your marketing, you can focus on the business itself.

Already started, where to now?

If you are established business, then chances are that you already have some form of marketing in place. This is great news! But don’t stop just because what you are doing is working. The idea is to GROW your business to new heights.

Figure out what is working and build on it, toss out what isn’t working and do some research on some new ways to expand your marketing. Build up a marketing strategy based on what is and isn’t working and divide up your budget based on the strategy. Prioritize what is most important and don’t forget to stick to the budget. Don’t gamble with money your business can’t afford to lose.

When to slow down on marketing?

Never slow down on marketing. The less you market, the less potential business will come your way. If you are battling to keep up with the influx of sales, then hire a temp or increase your prices temporarily. Whether you are battling to get sales in or battling with too much sales coming in, slowing your marketing is never the answer. As a guideline, keep your budget between 8-16% of your yearly budget.

Do you need help to navigate your marketing strategy? Contact us for a FREE marketing strategy proposal.