Marketing: Don't Make This Budgeting Mistake

Be aware on how you budget for your marketing activity.

"What percentage of turnover should a business allocate to marketing?"

This was a question I was asked by a member of the audience at a recent Chamber of Commerce Marketing Expo, where I was presenting.


I must admit I was slightly perplexed at the question.  In my mind I thought surely businesses in this day and age don't still work to a fixed percentage of sales when they are budgeting for their marketing activity?


But clearly they do.


I answered by saying that every company if different.  They have different targets, different audiences, operate in differing market sectors and have different routes to market. 


So you could not use a fixed percentage of sales in calculating a marketing budget that could apply to everyone.


However my answer was followed by a further question "But what should the percentage be if the company is aiming for RAPID growth?"


It was tempting to say well if it’s rapid growth they're looking for then it’s 12% but otherwise it should be 7.2%.  Politeness prevented me from saying this - I didn't want to embarrass the member of the audience (who I knew from an earlier introduction was a business advisor and was clearly looking for some 'marketing rules').


I thought an example might help and said if a company’s objective is to penetrate a new market or launch a new product then in a particular year their marketing costs may be higher than in the previous year. 


This increase in the marketing budget  can be  justified and accounted for as it would be helping to create an opportunity to generate future earnings.  However you would not expect this marketing budget figure to necessarily remain exactly the same for subsequent years.


So, in arriving at a marketing budget you should look at your business objectives and ask ‘What do we need to do in order to meet our business objectives?’


In my experience this can be a challenge for business owners as they are so caught up in the day to day running of an operation. However money can actually be saved by adopting this approach. 


So do allow a realistic amount for your marketing budget but don't resort to a fixed formula.  It's lazy and has no accountability and more often than not produces ineffective marketing results.

Posted by: Binal Sawjani on Oct 8, 2012
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