How much you spend on advertising and marketing depends on several factors including your industry and position within that industry, your target customers, the competitive environment, and your goals and aspirations.
Your marketing plan is the foundation of your business’ sales and revenue strategy. Developing your marketing and advertising budget is a critically important step in setting your business up to succeed. Your plan should be consistently reviewed and updated to match current market conditions, competitive developments, and business priorities.
The general rule in establishing a marketing budget should be seven to eight percent of your annual sales revenue. From there, 15%-20% of that marketing budget should be allocated toward advertising costs. Advertising ratios to total sales are generally in the 1.6%-2.0% range.
Marketing is the overall strategy of preparing a product for the marketplace and promoting it to a target audience. Advertising is a subset of Marketing and encompasses the tactics used to execute that strategy, generally involving promotion of your product or service through paid channels.
For example, if your local restaurant has annual sales of $1,000,000, you should consider directing $80,000 overall toward marketing and some $16,000 annually specifically to advertising.
The marketing budget may be allocated toward initiatives that focus on brand awareness and positioning including development and ongoing support of your website and social media channels, research, agency expenses, events, and signage.
Your advertising budget would be dedicated to items including media such as print advertising, digital display advertising, social media, search, and direct mail, among others.
From this baseline, what other budgeting factors should be considered?
Your Industry: If you’re in a competitive industry, you might need to spend more to stand out from competitors. For example, businesses in high-demand industries like finance or insurance may need to consider larger Google Ads budgets to compete for keywords and top search advertising placements.
Your Target Customers: The size of your target audience can affect how much you may need to spend to reach them. As well, a highly targeted audience may be expensive to reach.
Your Competition: If you have a situation where a competitor is aggressively pursuing market share, you may need to augment your budget and refine your tactics to remain competitive, visible, and relevant.
Product Lifecycle: You may need to budget more during the introduction or growth phase of a product or service to create awareness and drive demand.
Your Goals: Your marketing budget should align with your business goals. For example, if you want to enter a new market or launch a new product, your budget may need to be larger to cover the costs of that expansion. If you’re seeking to optimize existing operations and focus primarily on retaining existing customers, your budget might be smaller.
As well, your position in the market can impact the amount you might invest in marketing. Newer companies may need to increase their marketing budgets to 10%-15% of sales while more established companies, with loyal customers and more predictable sales trends, can typically invest 6% to 8% of sales in marketing.
Many local businesses rely on benchmarks to peg their initial marketing budgets. One popular method is what is known as an industry-based advertising-to-sales ratio. An example of these ratios is shared here for your convenience.
Please recall that an advertising-to-sales ratio (not marketing-to-sales) would generally run at 1.6% to 2.0% of total sales.
A marketing budget is important because it helps your local business to plan, manage, and optimize its marketing activities and align them with the business’ overall goals and objectives. Every business needs to do marketing and advertising to attract customers, increase sales and compete. Establishing your spending plan, and managing it carefully, are critical to your success.
Sentinel Solutions are experts in advertising and marketing and can help you optimize your marketing investment to grow your business.
Give us a call if we can help at 603-352-5896 or e-mail to Advertising@SentinelDigitalSolutions.com. We’re here to help you succeed.
