Marketing and Advertising: How Much Should I Be Spending On It
Marketing and advertising your small business are 2 of the most important ongoing activities you should consistently focus on for your business. There are many ways to do these.
It can be challenging for many small-business owners, especially when it comes to budgeting how much money will be set aside for these 2 key aspects of business.
One way of doing this is by calculating the percentage of gross revenue. This will allow for your spending to change as your revenue does.
Truth: Marketing and advertising budgets vary based on your industry, competition, profit margins and other aspects. Marketing and advertising are typically revenue drivers.
ICYMI: Marketing and advertising are typically revenue drivers.
So, let’s break it down:
- Marketing by Percentages
“The U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales and your net profit margin — after all expenses — is in the 10 percent to 12 percent range.”
Many marketing and advertising experts suggest that start-up and small businesses should allocate between 2 and 3 percent of revenue just for their marketing and advertising. If you’re in a competitive industry, up to 20 percent. Other experts advise a range between 1 and 10 percent, and even more depending on how long you’ve been in business, competitive activity and bottom line, what you are able to afford. These different opinions may lead us to believe that the percentage of gross revenue for marketing and advertising depends on whom you ask. I believe that investing in marketing and advertising is fundamental to growing your business so anywhere from 10 to 20 percent from your revenue should go towards these activities.
- Spending Variables
Regardless of what others are spending, I know that there’s a limit to how much you can afford to spend. Affordability can actually be your spending guide. Also understand that certain internal and external factors may cause your spending to vary. Introducing a new product or service requires more spending than what you spend on an on-going business. You may of course want to reduce marketing spending while you are in the midst of activating your exit strategy – this is if your business is in its twilight years. If you’re selling high-ticket, high-margin goods or services, you need to spend more on marketing. If your competition is giving you a headache, you may have no choice but to increase your marketing spending.
- Marketing Drives Revenue
Marketing and advertising are typically revenue drivers. Marketing and advertising spending in most successful businesses is task- or project-oriented, whether doing some pay day loan leads programs or the promotion in social media. Task-oriented marketing requires a marketing plan, something I strongly recommend.