There is no right or wrong amount for a business to spend on marketing. Many factors will influence whether a business allots 5 percent of its total annual budget for marketing or 15 percent. Selecting a percentage for your business is the first step.
For new entrepreneurs, it can be difficult to accurately assess the practical difference between spending 5 percent or 15 percent on marketing because the figure is often affected by what is currently mere in abundance: time or money. For instance, although 15 percent obviously buys a lot more ad space than 5 percent, inexpensive forms of marketing—like publicity and sponsoring community events—take more time than money, but can be much more effective.
The next step is to figure how much of your marketing budget should go to each type of marketing by determining which marketing projects will be most effective to help establish the image of your business.
Here are some tips:
* Track the types of marketing your competitors use. Sign up for their mailing lists, see how often they change their Web sites, watch how often they advertise. Then use this information to plan and budget your own marketing program.
* If you plan to do business with a variety of markets, including retailers, wholesalers, and distributors, be sure to allocate a portion of your marketing budget to allow for the cost of promoting to these markets.
* If your budget is tight—and what entrepreneur’s is not?—and your choice is between one thousand dollars of advertising or thousand dollars of direct mail, choose the latter. Though you’ll probably reach fewer people, direct mail will not only generate more orders but also help you determine exactly where those orders are coming from. Advertising may boost the amount of traffic in your store or increase the number of phone inquiries, but it also requires more effort in the long run to convert those inquiries into sales. Advertising tends to build name recognition more than direct sales. Savvy entrepreneurs know before settling on a marketing tactic exactly what they wish to accomplish.
One of the most difficult concepts for novice entrepreneurs to grasp is not that they have to spend money to make money. Rather, it’s convincing them to loosen the purse strings when business slows down. Especially when the economy slows, the first budget item that many businesses cut or eliminate entirely is marketing. This is the worst thing to do, for two reasons.
First, a business will receive less exposure to potential customers with a decrease in marketing, which then creates even less business, and so on. The second reason not to slash your marketing expenses, and an even more important one, is simply because your competitors are probably cutting theirs. For example, if you are one of five desktop publishing businesses in town, and four cut back on marketing while you increase yours, guess whose business will continue to grow despite the economy?
Be smart and consistent when drawing up a budget for marketing. It’s possible to be frugal and still hit your target markets effectively.
