Budgeting for Marketing

Is marketing an investment or a cost? Your approach could make all the difference in owning a growing or shrinking business.

Big business allocate a % sales ranging from 2% to 10%. This is often a function of the company culture, growth expectations and predicted profitability.

Another approach is to build a budget by adding up the estimated cost of all activities and adding a further 20% for new ideas or contingencies.

Our clients with turnover from $2m to $40m tend to budget according to recent history. Therefore, it’s about the same every year. If their market is growing they’ll fund more activity for growth but in tough times like now when consumers are not spending, they’ll reduce their marketing budget.

The point is, your marketing spend is entirely discretionary. A new café opened two years ago near our office. Husband and wife team, opening on a shoestring budget, they didn’t have cash flow for advertising but what they did have was the best coffee and cakes in town. Soon their new customers became devotees and the word got around. With a little Facebook activity more found the hidden café and soon it became a bustling hub for new mums, local workers and now it’s amongst the busiest place in town.

What does this have to do with marketing? If your product or service is outstanding you don’t have to spend much promoting it. But if your business is a me-too you’ll need to spend more. In other words, if you don’t have a point of difference, expect higher marketing spend and lower margins.

I like the Japanese approach to business. That is, think long term. How did Toyota achieve global market leadership? With a 50 year plan underpinned with unrelenting investment in R & D, quality and yes, marketing. Oh what a feeling.