One of the most critical decisions business owners make is how much to spend on marketing. Advertising is very often considered a luxury and when profit margins are under threat marketing expenditure is often one of the first areas to receive a cut.

But there are many reasons why the costs of marketing are justified especially when a new product is to be launched or building brand awareness is key to selling the product. It is a long-investment that shouldn’t be overlooked.

So how should this investment into your company’s future be decided upon?

  • As much as you can afford

Most company start-ups use this approach to decide how much to invest in marketing. This is sensible when you are testing different marketing methods.

  • What you spent last year

A history of marketing spend that’s acceptable based on previous years’ turnover and profit is sometimes used to set a budget for the year. This is intending to achieve much as the year before and not necessarily looking at growth.

  • Matching your competition’s spend

Looking for an increase in market share? Then it would make sense to look at those with more slice of the pie and what they are doing from a marketing perspective. Just be aware that economies of scale should apply to marketing as the market leader can afford to spend more on promotions than those with less of the market share.

  • Percentage of sales

This seems like a simple method but bear in mind that if you’re in a very competitive market you may need to spend more in order to get on the front pages of Google or book advertising in trade press. Make sure you are not limiting the expenditure needed to sell your product effectively.

  • Objective and task

What do I want to achieve and what marketing devices will best achieve the results and how much will that cost? Will the sales justify the expenditure?

Larger companies have the time and marketing specialists to also consider experiment and testing of marketing budgets in different test markets and build models to forecast the performance of different media and advertising plans.

With any marketing spend it is best to measure the effectiveness of all promotional campaigns and if possible do some pre-testing of advertising and copy concepts before the campaign goes live. Don’t spend what you can’t afford and make sure you learn from marketing mistakes!

Author: Denise Wilton

 

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