How much should a company spend on marketing is a common question among entrepreneurs. The correct response is…it is debatable. There are several variables to consider when deciding the appropriate marketing and advertisement budget. Here are a few things to think about:
Norms in the Sector – Most sectors have a spending spectrum that includes the majority of the businesses in that industry. The first step is to grasp the scope of the range. Previous experience, reviews from other companies in the industry, internet searches, and trade publications are all good places to look for this information. check out this site for more info.
The business model for the industry strongly affects spending ratios. Businesses with higher profit margins, such as drinks and software, can afford to spend more of their sales on advertisements than businesses with lower profit margins, such as electronics or banking.
“Fixed” Program – Certain businesses may discover that in order to be successful, they must spend a “minimum” amount on marketing. For example, if a company discovers that they need to attend a certain amount of industry trade shows or advertise in certain magazines on a regular basis, their budget would be dictated by a “fixed” collection of expenses.
Competitive Position – If Company “A” operates in an industry where the average profit margin is 5%, the size of the competitors it faces must be considered. If the company’s income is one million dollars, a 5% investment would result in a $50,000 advertising budget. If all of the direct competitors have a turnover of $5 million and invest 5% of it, they would have five times the budget as Company “A.” Increased spending percentages, concentrating the budget on a single vertical consumer group, and/or restricting the geographic scope of the marketing campaign should all be considered.
Growth Objectives – A organisation with ambitious sales growth objectives should understand how much marketing expenditure the higher revenue target will produce. Another alternative is to set the marketing budget as a percentage of the sales target. Reduced marketing investment is likely to result in fewer new customers being acquired, or even jeopardise the company’s current market share. Growing rapidly necessitates additional working capital for inventory, staffing, and accounts receivable, so rising marketing expenditure can be difficult for high-growth businesses. Companies who want to expand quickly would need to pay a higher percentage of their profits to do so.
Budgets During Recessions – During recessions, some businesses lose customers and profits. To keep marketing budgets “in line,” one natural inclination is to cut them. Does it seem reasonable to assume that if company is down 10%, marketing budgets should be cut 10% as well? What seems to be more rational is that if you cut your budget by 10%, you should possibly cut your sales projections by 10% as well. Budget cuts should be avoided because they expose you to fewer opportunities in your pipeline. Instead, concentrate on enhancing your message’s media mix, creative, and relevance.