Every business owner and marketing manager wishes that there was a miracle answer to the question of how to spend on advertising. Unfortunately, many ignore the question all together and hope it will go away.
New companies are in a difficult position of wanting to expand their clientele, but need to make sure that they retain the valuable customers which they already have. These small businesses should first focus their attention on meeting the needs of their current clients and taking care of them before embarking on costly, and potentially disastrous advertising campaigns.
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For every business it is important to note that excellent products and services do not maintain your company. In this day and age, your potential clients are having products and services brought to their front door, so to speak. You cannot expect a client to come looking for your amazing product. Marketing and advertising is more important now than it has ever been before, but the problem is being noticed above your competitors.
As a starting point for your marketing budget, work on allocating a reasonable percentage of your revenue to advertising in a way which will encourage profitability. This percentage can be determined by doing some research on the advertising-to-sales ratio for other businesses in the same field (public companies often provide figures of their marketing spending in their financial statement). If you find it difficult to find a public company in your field, a rule of thumb would be to start at around 5% and adjust your marketing spending up or down from there as need be. If you offer a service, though, try aim for 8% or higher (up to 15%).
The next question you will need to ask yourself will be: “Is my business built to leverage volume or is it built to leverage margin?”
1. If your business is built to leverage volume, you will likely be spending a smaller percentage of your sales on marketing. Because of the type of business you own, large revenues enable those small amounts to add up very quickly and, in competing with other high volume companies, you will be facing margin pressures which will not allow for a greater percentage to be spent on advertising and marketing.
2. If your business built to leverage margin, you will be more likely to spend a larger percentage of your sales on marketing. This type of company often has a smaller revenue base, but there is usually enough room in the margin to afford the higher percentage.