9 Ways to Determine Your Marketing Budget

9 Ways to Determine Your Marketing Budget

The question of how much money to spend on marketing is a tough one to answer—and it's one I get asked all the time—so instead of addressing each person individually, I thought it would be a good idea to write up the answer in a blog post.

So instead of writing about the answer to the question of how much to spend, I'm going to write about the top 9 answers (from myself and all the others who have written on the topic), along with pros and cons of each method. From there, you should have a good starting point for creating your budget.

Without further ado, here are the top 9 ways to figure out how much to spend on marketing. (ranked by popularity)

1. Percentage of revenues

This is by far the most talked about method of determining your budget. This method works by taking a fixed percentage of your revenues (that’s every penny your company brings in) and allocating that amount for marketing. The most commonly used numbers are 5-10% (generally for bigger businesses), 20% (used more for small businesses), and 2-5% (very large companies). Picking the percentage that works best for you will probably take some trial and error.

Pros: It’s an easy and understandable answer. It makes for great cocktail party and networking event rumors.

Cons: It really isn’t very accurate. In fact, it’s not accurate at all. Also, with small or new businesses, it can completely break down if you don’t have much to show for revenue. Oh yea, and it will vary wildly depending on your profit margins.

2. Percentage of net sales

Similar to taking a percentage of revenues, this determines your marketing budget as a fraction of your net sales. This method is a little bit less aggressive than the last method, since you exclude expenses from your calculations. As with the first method, this method will take a lot of trial and error to find the percentage that works well for your company.

Pros: It’s also an easy way to create a marketing budget, and it might be a bit better than percentage of revenues for some industries (depending on profit margins).

Cons: It’s a broad generalization that isn’t very accurate.

3. Everything you can afford

In the realm of fast-growing small business, this is definitely one of the most popular answers. The idea is to set aside the money you need to keep your business alive (presumably your family too), and throw everything else at building popularity. Proponents of this budgeting method will say that it helps grow your business quickly, and that you can worry about other things once you’re established in the marketplace. If you choose to budget with this model, make sure you understand the risks you’re taking.

Pros: It’s aggressive. Some Venture Capitalists like this plan because it means getting big fast. It is also another one that can be talked about easily, since it’s pretty easy to understand too.

Cons: It’s risky. Most small businesses should not even think about this type of marketing budget unless they have a significant amount of backup.

4. A hair more than the competition

This method is simple in principle: find out how much your competitors are spending, and use just-a-bit more than that to market your company. The reality of doing this is a lot more difficult than it seems, since it can be very hard to find out exactly how much your competitors are spending. If you do manage to find out that information, this method can be a great way to figure out how much to spend marketing.

Pros: It’s a reasonably good estimate of how much you’ll need to spend to compete in the marketplace. It can also save you some calculations, assuming you can actually get good information on your competitors.

Cons: It’s hard to find out what your competition is spending. Also, the act of entering the marketplace will likely change how much your competitors spend, so your numbers won’t be accurate for long.

5. Desired customer growth

This is a great way to determine your budget if you have a specific number of new customers as your goal. It does, however, take a lot of information to implement properly. First, you have to figure out how much it costs to get a new customer. Then, you multiply that cost by the number of new customers you want to acquire. The result is the amount you’ll need to budget in order to hit your target.

Pros: It’s a very accurate way to forecast the amount of spending you’ll need to hit your goal.

Cons: This method depends on having accurate data to begin with. It also ignores the immeasurable benefits of branding and image marketing.

6. Industry specific

A lot of industries have specific projections as to the amount you’ll need to spend on marketing if you want to make it. The best way to get these numbers is to find an association or organization that represents your industry and ask them for some averages. Once you have the averages, you can refine the actual costs based on your own situation and experience.

Pros: This can be a very accurate way to project what it will cost you to survive in your industry, and it’s much less generalized than other methods.

Cons: The industry average is going to include major players, so if you’re bootstrapping this budget could be way out of reach.

7. Spend nothing, market for free

You might be amazed at how many people think it’s a good idea to spend nothing on marketing. While I don’t think it’s possible to launch a company without spending anything at all on marketing, you can actually come close. At the end of the day, though, it usually comes down to this—if don’t want to spend any money on marketing, then plan on spending a lot of time. Time is money, money is time. If you don’t spend one, plan on spending the other.

Pros: It’s FREE of course. It doesn’t cost anything, and you can give up on budgeting right now.

Cons: It isn’t actually free; you’ll end up spending a lot of time on marketing if you follow this budget.

8. Desired market share

This is another quick calculation that can give a relatively accurate budget, so long as you have good data to start with. The projection is based on a goal of attaining a certain percentage of your market. The first step is to accurately define your market, the second step is to estimate the total marketing expenditure of anyone else competing for that market, and the last step is to take a specific percentage of that based on your goal. You’re left with a number that is a rough estimate of how much you’ll need to spend to hold on to your target market share.

Pros: This estimation can be relatively accurate with good data to start with. It can also be easier to estimate the total market expenditure than that of a single competitor.

Cons: It’s tough to get good initial data, and it involves a lot of calculation.

9. Objective/task oriented

This is a general model that works by setting out objectives, planning out the tasks required to complete your objectives, and then estimating the cost for all of those tasks. It can work wonders for companies who have a lot of measurements and information about their business processes, and who have very specific objectives they want to reach.

Pros: It’s a solid way to determine your budget. You can also make sure it is tailored to what is specifically important to your company.

Cons: You need to have an understanding of what objectives are important to your company, and the ability to link them with tasks. This method can require a lot of calculations.

Budget projections are only...projections

It’s important to remember that even the most accurate of budget projections is still only an estimate. Most of the time, your actual spending will be way off from your budget. The real benefit isn’t about accuracy, though. The real benefit of having a budget is that it gives you something to work from—a starting point. From there, you can make better decisions about the rest of your marketing.  - Whilly Bermudez

Don't Give Up On Your Business or Your Marketing

Have you ever given your all to something, experienced some delays, encountered disappointments, and then given up? What about when it comes to marketing your business? Do you sometimes get frustrated because the results you want aren’t coming to you as quickly as you’d like, despite the fact that you bust your butt to see results? Do you then start to doubt yourself, your skills and talent, your ability to succeed?


You’re not the only one. I know I’ve been there more than once since being self-employed. I have been tempted to quit on projects or promotions that weren’t going strong on more than one occasion. And I’ve even contemplated given up on self-employment when the chips were down and times were tough.


I know it costs money and sometimes its a sacrafice but Don�t Give Up Too Easily (Clients Are Just Around the Corner) 


Many of life’s failures are people who did not realize how close they were to success when they gave up. — Thomas Edison


There comes a point when being a business owner gets really hard (and I mean really hard). You’ve come up with your big idea, you’ve done all the initial legwork to set it up, and now comes the hard part: Getting the word out about your business and, more importantly, hanging in there while you get the word out about your business. The hard part now becomes not giving up too soon.


THE REAL WORK


When you start a business, when you start a new product or service, when you launch anything really, that’s when you feel like you’re working really hard. That’s when you’re willing to stay up late and get up early to get all the groundwork completed so that you can start making money. As hard as it can seem during this time, you generally know what to do, or you can at least figure out what to do, and you just plow through getting the work done. Then you finish the work. (Cue sound of crickets.) Now what?


All right, now you figure out that you need a marketing plan. Great, that gives you something else to do! You finish the marketing plan and begin implementing it. (You believe in this plan. You’ve given it a lot of thought. You feel really confident about it. It’s going to generate the business you need.) You run through your plan for several days, maybe even several weeks, and then … nothing. Nothing happens, and in our instant-gratification-seeking world, this is where things start getting testy:


When you’re over the rush of your big idea,
When you’ve completed the work of creating it,
When you need to pay the bills, and
When it feels like you’re sitting on your laurels.

When you’re doing all that initial setup (building your website, creating the product, etc.), it feels like real work. Marketing doesn’t feel like real work, and it gets harder to justify and explain to those around us, particularly those who don’t have businesses. Marketing? What’s marketing? Building a website people get; that sounds like real work. Marketing? Marketing on Facebook and Twitter? All right, now you’re just playing around. Those are the conversations you have, both with yourself and with others, for justifying what you’re doing.


Writing posts for your blog, replying and posting on social networks, doing interviews, commenting on other sites and forums, searching for opportunities to guest post — all these things don’t feel like work, but they’re very necessary for building a successful business, and sticking with these activities for the bulk of your time each day for the six months or year it’s going to take you to gain some traction seems impossible.


NOT GIVING UP


So, how do you do it? How do you avoid giving up too soon?


You make a commitment. Do you want to do this? Are you willing to bet the next 6-12 months of your life on it? You have to be willing to say, “This is my commitment. These are the milestones I intend to reach. This is my intention.”


You maintain discipline. Each and every day, you have to say, “This is what I’m committed to doing. These are my top priorities.” You have to focus on what you believe to be the “highest and best use” tasks that will get the word out about your business and start generating income for you. You stay focused, not only on what you’re going to do, but also on what you’re not going to do (compulsively checking email, surfing the Internet, taking a dozen breaks each day, etc.).


You trust your plan & your marketing consultant. You’ve given a lot of thought to the best way for promoting your business, and now you just have to believe in it. Don’t keep switching plans and changing things up. It’s going to take time to see results. Give yourself at least a 90-day test with your current plan before doing any tweaking.


Be willing to stay up late and get up early. Although it’s not easy to think about, success isn’t just going to be handed to you. You’re going to have to roll up your sleeves and do the hard work to get things going. No one’s going to do it for you. As you start to get more successful, you still have to continue getting the word out, and juggling priorities can be a challenge. Know that handling incoming work and generating opportunities for future work are equally important.


Find support. Get an accountability partner to help you stay the course. It’s a lot easier to waiver when you don’t have someone else holding you responsible and accountable for your original plans and intentions.


Finding a way to hang in there and not give up on your vision can be the hardest thing you ever do to see your business to success, but you have to figure out how you’re going to stick with it for the time it will take to gain some momentum and start seeing results.

(We would like to thank Amber Singleton)

How do the 3 Florida Candidates for U.S. Senate measure up on their ‘Brand Visibility’?

Myself and my partners at howsociable.com decided to use sociability metrics to see where each of them stands. I believe that social media visibility is very important to the corporate world and Yes, politics too. We all know how social media played a huge role in the 2008 Presidential election.

I am fairly certain that Marco Rubio will be the next Senator out of Florida and it’s who I support, and here are the results.

Charlie Crist (I)              Score 378

Marco Rubio (R)             Score 320    

Kendrick Meek (D)         Score  222

*The governor’s score is slightly higher because being the leader of a large state produces a lot of press releases and news that will always end up on internet feeds. Yes, there is a small margin of error when a name can be mistakenly derived from another word. Example: ‘Creative Partners Group’ will attach to the word “creative” and cause greater results. It is safe to suggest that the more unique the name of the brand is, the more accurate the results.

What is a good score?  If you are a local brand operating a local business, maybe state wide – the score of 30 or higher is fairly good. Anything past 100 is really good and beyond that is excellent.

If you are a national or global brand you should have a score of 1,000 or higher. For example: ‘Walgreens’ has a current score of 1,064 while ‘Facebook’ has a score of 31,274.

Here are some others:

Race for Florida Governor

Rick Scott (R)    Score 160

Alex Sink (D)     Score 200

Need to improve your brands visibility? We can help.                               Contact us at www.WhillyBermudez.com

What is a "Counterfeit Marketing Director" ?

Counterfeit Marketing Directors do Exist.

At a marketing conference in Chicago, a colleague stated what I have been saying for years.  The absolute worst thing for any business,  company of any size ( especially a start up or small company) is having someone with a title of Marketing Director or Marketing Manager that knows ABOSLUTELY NOTHING ABOUT MARKETING. Seems unlikely that this happens? Well, I will refrain from calling out several Miami based businesses that are lead by someone that is in this particular scenario.

The terms ‘Marketing Director’, ‘Marketing Manager’, ‘Brand Ambassador’, ’Public Relations Director’, ‘Advertising Director’, ‘Vice President of Marketing’, are completely over used and utilized in all the wrong ways by people that simply don’t know what they’re doing in this field. I don’t directly fault them; I give blame to the business owners or executives that do it to save a few bucks. Just because you can mobilize and organize people to perform tasks, or even fair well logistically- this has absolutely nothing to do with what a real Marketer should be doing. This title should be ‘Operations Manager’ or ‘General Manager’.

The reason why this is so significant is because having someone that isn’t knowledgeable on marketing means that the systematic planning, implementation and control of a mix of business activities intended to bring together buyers and sellers for the mutually advantageous exchange or transfer of products will not happen or not happen properly. A good marketer can write and read a marketing plan. He/she can write and interpret R.O.I reports (Return on Investment), He/she has a good understanding of how social media works and gauge analytics.

If you don’t have someone that can do that and later translate some of the planning into advertising campaigns, well the climb is uphill and the fall will be steep. Yes, advertising and marketing is not the same thing. Advertising is a single component of the marketing process. It's the part that involves getting the word out concerning your business, product, or the services you are offering. It involves the process of developing strategies such as ad placement, frequency, etc. Advertising includes the placement of an ad in such mediums as newspapers, direct mail, billboards, television, radio, and of course the Internet. Advertising is the largest expense of most marketing plans, with public relations following in a close second and market research not falling far behind.

Friends, I’m all for employing people. We need to give people jobs, but we also have to place them in the right roles based on their talents and experience. Ready to put it to the test?

Yes, a degree in marketing is helpful. However, scholastic principals without a good knack for the business are the same as nothing. A marketing professional should be able to understand and execute all phases and components of Marketing. Those recently graduated should work alongside a seasoned professional that can be credited to developing a brands and writing plans. I know that more than anything else I have written close to 275 plans to date. I offer many services, but when everyone is sleeping I am writing plans or business plans for clients. It is the most difficult but it lends itself to the kind of ‘experience’ that I’m referring to in this blog. Not to mention that a really good marketer will be able to write your companies marketing plan all by him/her self. You put them to the test today. Ask them if they are familiar with these:

a.      ROI (Return on Investment)            

b.      Difference between Advertising & Marketing

c.       What are the basic marketing components?

d.      Where does your company rank in terms of Social Media visibility?

e.      Have you implemented goals to secure marketing partners?

f.      How far along are today's sales goals compared to last year?

g.      What is your client turnover rate?

h.      What is a Web site grade?

i.        What is Customer Acquisition Cost?

j.        What are conversions?

*Score:  If your “Marketing Professional” didn’t get at least 3 out of the 10… I consider that a sad state of affairs. Keeping this person in the Marketing Manager capacity is stunting your growth. There are many missed opportunities that sometimes are difficult to gain again.

If you are a business owner or a CEO, you owe it to yourself and the person to place them in their right capacity. You will get more out of them and they will get more out of their employment with your company.

Thanks for reading! Learn more at: www.WhillyBermudez.com

Just a Little Bit About (R.O.I) Return on Investment

Marketing campaigns are investments. And like any smart investment, they need to be measured, monitored and compared to other investments to ensure you’re spending your money wisely.

Return on investment (ROI) is a measure of the profit earned from each investment. Like the “return” you earn on your portfolio or bank account, it’s calculated as a percentage. In simple terms, the calculation is ROI calculations for marketing campaigns can be complex — you may have many variables on both the profit side and the investment (cost) side. But understanding the formula is essential if you need to produce the best possible results with your marketing investments.

With solid ROI calculations, you can focus on campaigns that deliver the greatest return. For example, if one campaign generates a 15% ROI and the other 50%, where will you invest your marketing budget next time? ROI helps you improve your ongoing campaigns. When you tweak your offer or launch a campaign to a different list, you can compare ROI and focus on the version with the best performance.

Finally, ROI helps you justify marketing investments. In tough times, companies often slash their marketing budgets – a dangerous move since marketing is an investment to produce revenue. By focusing on ROI, you can help your company move away from the idea that marketing is a fluffy expense that can be cut when times get tough.

Before you begin

It’s a good idea to measure ROI on all of your marketing investments – If your sales process is long and complex, you may choose to modify or simplify your ROI calculations, but a simple calculation is more useful than none at all.

Confirm your formulas

There are several figures you’ll need for your ROI calculations:

• Cost of goods sold (COGS): The cost to physically produce a product or service.
• Marketing investment: Typically you’d include just the cost of the media, not production costs or time invested by certain employees; however, in certain cases it may be better to include all of those figures.

• Revenue: It can be tricky to tie revenue to a particular campaign, especially when you run a variety of campaigns and have a long sales process. Your finance team may have some suggestions for estimating this figure.
• Companies calculate these figures differently, so confirm the formulas your company uses — your finance team or accountant can guide you.

Establish an ROI threshold

Set an ROI goal for your entire budget and individual campaigns; set a floor as well. By doing so, you gain more power over your budget. If you project that a campaign won’t hit the threshold, don’t run it; if you can’t get an ongoing campaign over the threshold, cut it and put your money elsewhere.

Set your marketing budget

When you have an ROI goal and annual revenue/profit goals, you can calculate the amount of money you should spend on marketing – just solve the ROI formula for the “investment” figure. You’ll be more confident that you’re spending the right amount of money to meet your goals.

Calculate ROI on campaigns; track and improve your results

Tracking ROI can get difficult with complex marketing campaigns, but with a commitment and good reporting processes, you can build solid measurements, even if you have to use some estimates in the process.

Use your ROI calculations to continually improve your campaigns; test new ways to raise your ROI and spend your money on the campaigns that produce the greatest return for your company.

Learn more at: 

 www.WhillyBermudez.com