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How to Set a Marketing Budget for Next Year

Da-dum.      Da-dum.      Dadum. Dadum.   Dadum. Dadum. Dadum.Dadum.jaws

In case you can’t tell, that’s the music from Jaws. No? Really? Seems obvious. (Just kidding.) That, my business friends, is the sound of the approaching end of 2016. Already?! (I know, right?) The fourth quarter has arrived (that’s business quarters, not football) and that means it’s time to think about next year.

Why Set a Marketing Budget

Setting a marketing budget for next year should be part of your planning. Unfortunately, we often meet with new clients who want to hire a Raleigh marketing agency who have no marketing budget. Say what? Yep. No marketing budget. The plan appears to be to find some money to pay for marketing. (I’ll check under the couch cushions while you rifle through the coat pockets in the closet.)

We’re all for that if it means we can help you expand your business. But after having done this for awhile, we can tell you that’s not a recipe for success. Here’s why: most companies taking that approach are dipping their toes in for as little money as possible because they have no money set aside for this purpose.

Products and services don’t sell themselves. That old adage, “You have to spend money to make money” is true. If you spend only $200 a month on a pay-per-click campaign, you’re not going to see results. And then you’re wondering why you’re wasting that money and why your marketing agency is telling you to spend more. (Those cheaters!)

How Much to Budget for Marketing
Option A – An easy way to calculate a marketing budget is to take a percentage of the projected gross marketingbudgetinfographic-copyrevenues, usually 2-3 percent. But that number may differ based on your industry and the size of your business. Plus, a new business should spend more, say 3-5 percent. If your company is in a growth phase, you might spend even more than that. According to the Small Business Association (SBA), some retailers put up to 20 percent of their sales toward marketing during the early years to help build the brand.

The SBA suggests businesses with revenues less than $5 million and margins of 10-12 percent allocate 7 to 8 percent of revenue to marketing, split between brand development and promotion. How much you spend is really up to you. The important thing is to create a real budget instead of relying on leftover money.

Option B – While it’s easy to arbitrarily choose a percentage based on your revenues, it’s smarter to base your marketing on a specific goal. This is hard, which is why few companies do it. But if you can take the time and do the research to set a smart goal, you can talk to your marketing company intelligently about how much it will cost to achieve it. (And  yes, we mean one of those annoying SMART goals: S – specific. M – measurable. A – attainable. R – realistic. T – timely.)

How to Spend Marketing Money

More importantly than how much you spend is how you spend. You can spend thousands of dollars a month on marketing but see very little increase in business if you’re not spending it the right way or in the right place. That’s why Option B on how much to spend works so much better.

As the SBA suggests, you can split money into brand development and promotion. The first is your logo, website, brochures, content, and any other materials that make you shine and stand out. Promotion is advertisements in any form, from billboards to radio ads to Facebook and pay-per-click advertisements.

Choosing the right mix of these depends greatly on your industry and location. For example, we have some clients who advertise in the Yellow Pages. (Remember the phone book that shows up unwanted on your doorstep?) In some areas, people use phone books and therefore it’s still a worthy place to advertise. For others, it’s a complete waste of money; their clients Google everything, including phone numbers, and may not even know what Yellow Pages are, exactly.

Another great example: print. Many people think “direct mail is dead.” In reality, we still see between 2% and 3% returns on our clients’ mailing campaigns. When done the right way for the right audience, they can produce leads.

You are Not Your Client/Customer
Another thing to keep in mind: you are not the client or customer. By that we mean, it doesn’t matter what YOU personally do when it comes to marketing materials. You don’t listen to the radio? New leads don’t care because they still do! You might think TV advertising is worthless because people fast forward through the commercials. But TV advertising dollars are still increasing. Throw away all those annoying postcards? New website visitors still react to fantastic direct mail offers. Be sure to consider that what motivates your clientele may be much different than what motivates you.

Get Started
All of these decisions are part of your marketing strategy. Most Raleigh marketing agencies will work with you to choose the right tools for your company. And yes, that includes us. Contact us to learn more. 🙂