Imagine your friend or a life partner decided to surprise you with Lamborghini as a gift. It was waiting for you in your front yard with a note that read, "Jump in and take a ride!" But when you jump in, you realize the car has no gas and you may not get that fuel for few weeks. How would you feel? What would you do?
All too often I have seen entrepreneurs suffer a similar experience when they lack a budget for marketing and sales. A marketing and sales budget is like the fuel that runs your business engine and you cannot run without fuel—period. Imagine this country without fuel – how serious of an issue would that be? What would the government do to get fuel for this country? You know the answer to that.
I've sat through countless internal marketing meetings. I've seen companies with budgets for almost all off their business activities, inventories, production, supplies, customer support and so forth. When business wanes, they will most likely blame the marketing and their sales professional for not bringing in enough business.
The Importance of a Marketing Budget
"The average 2013 marketing budget shows a 13% increase over the 2012 average." –Richard Fouts, Research Vice President at Gartner
Marketing budgets are on the rise because companies are beginning to see their worth. Also with digital media, they see a clear return on their investment. I strongly suggest that you create a marketing and sales budget. If you don't, you'll miss crucial indicators such as when to fix or increase your product or service cost. As a result, you may be out of business and non-existent within a few months.
Marketing investment is like capital investment. Many fail to plan for it, but it's necessary to tackle market research and establish a well-planned Ideal Client and Active Client List building process.
Calculating Your Marketing Budget
Perhaps the most difficult part of setting up a marketing budget is properly calculating it. How much should you spend? According to a CMO Survey report (Chief Marketing Officer), companies spend approximately 10 percent of their overall budgets on marketing. The report reveals that the following sectors are spending a percentage of their budgets on marketing:
- B2B-services at 11.1 percent
- B2C-product at 11.6 percent
- B2C-services at 12.1 percent
- B2B-product companies at 7 percent
Interestingly, large companies ($500M plus in sales) spend approximately 5.31 percent less on their marketing budget compared to smaller companies ($500M or less in sales), who spend 11.71 percent on their budgets. So, small companies need to spend approximately 10 percent to gain visibility. In my opinion, small companies need at least 15 percent.
5 Ways to Find Your Business Fuel
You can successfully fuel your business with your marketing and sales budget. Here are 5 ways to find that vital fuel and grow:
- Percentage of revenues. This is a popular method of prepping a marketing budget. In essence, you take a fixed percentage of your revenues and allocate it to marketing. Most companies allocate 5 to 10 percent. (This is my favorite one.)
- Percentage of net sales. Much like using a percentage of revenues, this method is a bit less aggressive because you exclude expenses from your budget calculations. Choosing the proper percentage will be a trial and error process, but most companies start at 5 to 10 percent.
- Dedicating as much as you can afford. Since businesses grow fast, this is a popular budget allocation process. The idea is to allocate the money needed to keep business alive and throw everything else at raising popularity through marketing.
- Outspend the competition. Another popular method of allocating a budget is to allocate more than the competition. While mirroring a competitor's budget can give you a reasonably good monetary estimate, it's dangerous. They may have more assets and resources to dedicate to their marketing ventures than you.
- Industry specific. An industry specific budget is based on the average budget allocation for marketing in your industry. This can be an accurate means of projecting budget costs to survive in your industry.
Finding the right marketing and sales budget for your business will be a trial and error process. But it will be worth the time and investment. Stay tuned for more information about creating and implementing strong marketing and sales strategies.