We went through a list of FAQs that we get from the groups we speak to, both from our social media platforms and from clients whom we work with – and by far, the most common question is ‘How do I set a marketing budget?’
It’s a great question and the answer is not as simple as you would think, so we are also going to make some recommendations as to how you manage that budget once you have set it.
3 Scenarios in setting up a Marketing Budget
We thought that the best way to understand this is through explaining with different scenarios, and there are more than 3, but they will get you thinking. It’s not ‘pick a number – any number’; it’s regarding the contribution your marketing budget has to produce to your business growth. Therefore, Growthology will take you back to basics. What are your business objectives for the period that the budget is applicable to?
Scenario (1) The most simple scenario
You have no major growth objectives for your business this year – it’s business as usual, with normal growth plans and nothing specific disruptive happening in your sector. Here, your budget should sit between 2% and 5% of revenue.
The range does have some caveats with it, like where your industry is in its business cycle, your business’ position in that industry, how competitive your industry is – there are others, but these are the headline considerations.
Scenario (2) Your business is planning local growth
This could look like a launch into a new district, launch of a new product or service, bringing your existing product/service to a new market – there are lots of growth strategies. Fundamentally, your business is doing something different from last year.
Starting from planning to forecasting, you’ll know what your expectations are of this new initiative and you should plan to spend considerably more. It’s a very rule of thumb, yet you should be focusing at around 30% of revenue. You don’t get the advantages of a new revenue stream without any marketing investment.
Additionally, when we say this is a rule of thumb, we mean that – it really depends on several elements. The cycle your industry is in, the competitiveness of your sector, your current position in that sector [as previous]. For example, are you a known brand? If you are, that’s going to cost less than if you are a relatively unknown brand.
Moreover, this is where you need to get into the details. If you had no marketing budget restraints, what would your business like to do to reach its targets? As much as possible, cost it out in detail. Ask yourself what worked before that you applied and is less of a risk. Hence, your business will have some successful and well-measured marketing results. Try out various scenarios and have an expectation: if you invest a specific amount of dollars, what do you think the return will be on that activity?
Lastly, create a plan, have confidence in it and stick to it – once you have started, don’t pull back. Everything takes time to work so you have to be consistent. Also remember to measure return on money spent.
Scenario (3) Your business will be operating into an international market
This could be completely unknown territory; but, from your business planning you will have expectations, break-even figures, timeframes, and so on. And again, as a rule of thumb, you could be looking at large percentages.
Going back to scenario (2): here are some key questions to look into.
How established are you as a brand?
How sophisticated is the market you are entering?
If you had a market research, it should give you an insight into the market performance. Are you familiar with this visual? Link
We were discussing with a group of business owners who said that opening up in a new country was ‘employing a BD Manager and getting an office’. We suppose that is a strategy of sorts. However, we do wonder if leveraging your existing brand and everything you have invested in that would give you a better long-term outcome!
Hence, there are three scenarios to consider. However, how do you manage the budget once you have decided on it? To make simple:
- Make a plan, including an activity ‘calendar’
- Don’t pull the plug when you don’t get instant gratification
- Have confidence and keep going, but make adjustments
- Keep in control of the costs
- Have expectations and measure results
- Make sure your business can afford scenarios 2 and 3 before you start!