Want to see if a person has a good poker face? If they are in business, ask them the question, “what’s your annual marketing budget?” In the world of marketing and advertising, this one question elicits the response “I don’t know” more than any other question we come across.
So, what should an annual marketing budget be?
According to the U.S. Small Business Administration, a marketing budget should run approximately 2 to 3 percent of the gross annual sales for an established business (assuming there are no significant changes/projects that need to occur that year – i.e. new website, brand, etc.). For startups, that number is 3 to 5 percent.
At GRIT, we believe these percentages offer a baseline but are not the end-all in picking a budget number. It’s not a one-size-fits-all model. In fact, several factors need to be considered when setting the annual budget (we like to call them the 4 what’s):
- What’s the industry?
- What’s the competition doing?
- What is happening?
- What’s coming?
What’s the industry? What’s the competition doing?
A company’s industry can play a significant role in determining the amount to spend, especially if the audience has a business to business “B2B” or business to consumer “B2C” focus. For example, if a company is heavily consumer/retail, the budget could be around 20 to25 percent* of gross sales versus manufacturing where is may be about 8 percent*. Another factor to consider is the business location, which may impact the cost of the marketing vehicle(s) being used (big city versus suburban area).
In addition, understanding how (and where) the competition is spending their money is important. By having an idea where they are spending, missed opportunities may become apparent – highlighting where market share could be gained.
*Source: The CMO Survey & Deloitte Digital
What is happening?
Understanding what has worked before (and what hasn’t) is critical when it comes to reaching target audiences. A question to ask is, “how will success be measured?” Then put tools in place to measure performance. Remember to continually monitor and evaluate channels and approaches, and pivot when needed. Reviewing what just happened, and is currently happening, will help you make better informed decisions for the next year.
Knowing the strategic vision and goals for the company is important in planning for the future. Are there any big product launches coming up? Is the company moving into a new service area or market? Any changes to the customer base? All of these questions (and more) will help create a detailed marketing plan that will drive the budget. Yes, there may be items that can’t be afforded this year, but starting to think “big picture” and understanding the possibilities/priorities is a great place to start.
Remember, the most important thing in setting a budget is not only for the leadership team to feel comfortable with the number but that the number is actually set. Too many times companies have the best intentions in setting a budget number, but it’s actually not finalized until the end of first quarter – leading to missed opportunities.
Need help in determining the budget (or creating a marketing plan) that is right for your organization? Contact us today; we’re here to help.