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How to Determine Your Marketing Investment?

Marketing is the driving force behind every business plan. A business plan without the proper marketing plan is like having an automobile without the proper engine it may look good, but it won t get you to where you want to go.

There are also three critical parts to every business: operations, business development and marketing. These parts are interrelated and interdependent. They work together to move your business forward. A typical business should have an area for each of these on a Profit & Loss statement.

Let s now focus on the marketing area. The first question one typically asks is how much should be spent on marketing? First understand that marketing should be considered an investment and not an expense. After all, it is an investment in your business and you should be realizing a return on that investment. Accountants will argue that it is an expense, but if you spend $3 on advertising, you should certainly expect $2, $3 or $4 in return as revenue.

But not matter how you look at it, you still need to determine how much should be invested in marketing your business. There is no right answer, although there are some parameters you can use in arriving at a dollar figure that seems comfortable for you and your business.

A financial adviser will suggest that when investing, you should use your head and don t invest over your head. If you think marketing is a gamble, then follow the advice given by casinos bet with you head, not over your head. The same can be said for marketing. Invest with what is realistic for your business.

Historical Review

The first step is to take a historical, or what is often called a hysterical look back over the past year or two and see how much you have been investing on marketing. Write that number down on your worksheet.

Advertising-to-Sales Ratio

Next, use what is called the advertising-to-sales ratio. This is done by looking at your total sales/revenue and taking a percentage of that total to arrive at your marketing budget. According to the American Marketing Association, the average business spends between 3% to 5% of its total revenue on marketing. This may vary, depending on such things as the length of time a company has been in business, competition in the industry, location, public awareness of the product/service and the cost of the product or service.

The point is, do the math by playing with some of these percentages to arrive at a number for your business. Keep in mind, it has to be a budget that is affordable for you and your business.

The Wish List

A third way of determining a marketing budget is to make a wish list of marketing strategies and tactics you want to use in your business. Then, go shopping and estimate the cost associated with each. Add up the dollars to arrive at a total. Then try that number on for size. Is it comfortable, does it fit where you are financially, can you sleep at night if you budget that much for marketing your business? If so, then you are set. If not, then you need to pare it back until you reach your comfort level.

Now you have three budget levels with which to work. You can decide to average the totals, take the highest total or work with the lowest figure. It will all depend on your comfort level. But you are close to determining a final answer.

Once you have a marketing budget with which you are comfortable, you can begin to apply it to your marketing plan. You may want to consider hiring a marketing professional to help you manage the process.

By Randy Gartner

Integrated Marketing Services, LLC

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