How To Determine The Amount To Budget on Marketing.
Now that you know the need to spend money on marketing, you may like to know the amount that will be appropriate to be set aside for this. There is no ‘one fits all’ approach to this. But generally, amount of a marketing budget can be a function of any of the following:
- Personal Judgement. This involves you determining how much you think expedient to be spent on marketing your product or service. You are in the best position to understand everything about your business. Your knowledge of the business and the objectives you want to achieve will provide a guide how how much your marketing budget should be.
- Percentage of sale. You can develop a policy whereby you spend a percentage of your sales on marketing. This type of policy may work well for a well established business. For a new business, you may need to spend more on marketing even when there is no much sales yet. If you are launching a new product, there is likelihood that you will spend more money marketing such product than existing products.
- Level of liquidity. You may have a plan to go for an extensive marketing but cash may be a constraint. In this situation, you may base the budget on marketing on what you can afford. But it is advisable that you make adequate provision for this while developing your marketing plan or strategy. Otherwise, the figures in your business plan may no longer hold.
- Previous year budget. How much you spend on marketing may be determined by the previous year spending especially if the return on marketing investment was satisfactory. You may decide to mark it up by a certain percentage to take care of inflation.
- Competitors’ spending. What you spend on marketing may be influenced by the amount your competitors spend. You may decide to match your competitor or exceed their spendings.
As an entrepreneur, doing marketing on small budget will help you ease your liquidity. It is not the amount you spend that matters. It is the effectiveness of your marketing efforts. Therefore, you should identify the marketing efforts that yield the best returns and focus on it.