How do you decide on your marketing budget?
1. Set preliminary budget based on tasks decided upon.
2. Estimate competitors’ budget and adjust accordingly.
3. Prepare budget document with rationale of expenses.
4. Use percentage of Sales
The most common method is using percentage of sales. However, what happens if sales go down? The problem you are trying to correct already has less money to begin with. However, it is used time and time again. When using that method, I think many look simply at the industry norm, which is a certain percentage. Take that percentage times your annual revenue. For example:
Annual sales = $1,000,000
Marketing % = 7%
Annual Exp = $70,000
Monthly Exp = $5,800
After that simply take that number and split it up between, what we call the Lead Generation trio: Advertising, PR and Referrals. Even that is probably not that true, because we seldom count referral and PR into our budget. I typically see a calendar with the major promotions scheduled out for about 90 to 180 days and the next 30 to 60 days completed with the smaller promotions. There will be a mix of radio, print, TV, direct mail, displays, etc., most directed at gaining new customers. In recent years, there have been better efforts at extending into our existing customers and tailoring efforts in maintaining them. Further steps have been made towards specific referrals programs developed. They have proven to be highly successful. I would like to take you a step further.
In previous conversations, I have alluded to the Duct Tape Marketing method of Know, Like, Trust, etc and in fact developed my Lean Marketing House with this column being the pillars of the house. But what if you took your budget and developed around this pillar. Take your marketing dollars and define what you are willing to spend to get a customer to know you, like you, trust you, etc. The easiest way to start is to use your past six months. I think it might be quite alarming to see where the money has been spent.
Do you think the same marketing dollars should be spent on getting to know a customer instead of trying to get someone to repeat or refer? Once, you capture a person, learn how many dollars are being spent trying to get them to like and trust you. Or do you leave it to chance?