“What should I be spending on marketing?”
We get this question a lot. Especially this time of year. There are business category norms, there are formulas, there are best practices.
But many companies create one fundamental error that severely handicaps whatever they do.
One of the first things a business does is select a physical location, which is very important if it is a retailer. The lease is secured and initial payments/deposits are made before any revenue or sale has been made. It is established as “common sense” that the location of the business is a first order of business. Before sales.
Yet, marketing allocation is often determined on the back-side of sales. Some typical comments heard about marketing budgeting:
We take a percentage of last year’s sales revenue…
We have spent X in the past and…
We have Y left after operational budget and expenses and we’ll put Z into
That is the fundamental flaw.
Marketing precedes sales. Marketing is about setting the table for sales to happen. Drive people to your store. Acquaint new prospects into trying your product or service. Establishing a reason for consumers to come to you versus a competitor. These are marketing objectives. They precede sales. So, why would marketing allocation not be considered in the same planning light as a physical space, operational costs, or sales expense?
The great brands follow this practice and avoid the fundamental error of marketing allocation.
So, what is the right way to set a marketing budget? The correct answer is it needs to be customized to a company’s specific situation. However, there are a couple of core tenets:
*What is opportunity going forward for your business?
*How much “at risk” are current customers to competition? (This may be an
operational versus marketing need)
*How much of sales is predicated on new customers or new products?
*What is the short-term and long-term ROI on marketing initiatives?
*What is the opportunity and impact of referral?
Establishing a marketing budget should be considered in concert with establishing how you are going to deliver a complete customer experience. It is as necessary as operations. It doesn’t necessarily mean you need more money, but it is about being more strategic as to how it fits into a business’ overall operations. Marketing allocation should be at the same table with space, operations, customer service, HR, and sales. Marketing doesn’t lead or supersede those functions. But, nor is it a lagging or subordinate one, either.
Confused? Want to discuss your situation?
We can help.