How Much Should I Spend on Marketing?

Posted on 27. Aug, 2009 by Adam in Business

Money It’s an age-old question in the advertising world: how much of my hard-earned money should I put into marketing my business and building more sales? Ask any marketing expert and they’ll tell you a different story. Some will say marketing is an investment and you should invest as much as you can, others will say you should contribute 10% of sales, others will say you should always spend more than your competitors.

The right answer is:

“It Depends on What You’re Trying to Accomplish.”

In 2004 Paul Dyson wrote an article in Admap Magazine and described 7 scenarios:

1. Percentage of sales: the budget is a proportion of last year’s actual sales, or next year’s forecast sales

2. Objective and task: objectives are set (turnover, profit, growth) and the budget required to meet these objectives is estimated

3. Competitor: the amount spent by competitors is used as a yardstick; a version of this is the well-known rule of thumb that share of voice should be at least equal to share of market

4. Affordability: the budget is the amount left after everything else has been accounted for

5. Historical: do the same as last year, with an adjustment for inflation

6. Executive Judgment: basically guesswork, but probably an informal use of one or more of the above.

7. Brand Led: a more scientific approach that uses research data and econometric modeling.

The approach would be: think about what you’re trying to accomplish and build your budget around that goal. For example, if you’re trying to lead the market in a service priced at $2000.00 month you could spend:

1. 10-15% of Estimated Sales: 2000 x 50 sales per month x 10-15% = $10,000-15,000/month

2. For the objective grow sales 20%: You could figure that $10,000 = 50 sales and therefore spend $12,000 and expect 60 sales.

3. You could research a competitor and discover that they spend $9000 therefore you could win if you spent $10,000

4. You could realize that you only had $10,000 to spend and just do that

5. You could just decide to spend $10,000

6. You could do a ton of research and modeling and come up with $10,000

Beware of the gut-feeling approaches. From our perspective, the more scientific your measurement, the more likely you can figure out what’s working.

Internet Marketing Takes Out the Guesswork
We love internet marketing because it is so exact in measurement. With tools like Google Analytics we know that a PPC campaign costs $10,000 and yields 50 sales: Here’s how the math works:

• $1.00 per click x 100,000 clicks = 50 sales = (50 x $2000 per product) = $100,000 revenue
• Each $1.00 click generates $10.00 in revenue

SEO is also very measureable with Google Analytics because you can sort by organic traffic:

• $10,000/month on SEO = increase of sales from 50 units – 100 units.
• 50 sales x $2000 = $100,000 revenue increase.
• $200 in SEO = 1 sale.

Old Media Depends on Fuzzy Numbers
Advertising in TV, Radio, Newspaper is a lot harder to measure. That’s why the old media ad world comes up with the difficult models like “Brand Lead” or “Executive Judgment.” If you use your gut to determine Ad spending, and sales increase, you’re a genius! If they don’t, you increase spending until you’re in line with your competitors.

Some Easy Rules to Guide You:

1. Pay very close attention to ROI: Don’t invest in advertising that you can’t measure.

2. Stretch Your Comfort Zone: Once you’ve determined to spend 10% of sales on advertising, think about what it would look like to spend 15-20%. If it would double sales, it’s a no-brainer.

3. Treat Marketing as an Investment: Think of it as you would a company. If it works, invest more. If it doesn’t work, dump it!

This is a Guest Post by Zeke Camusio who is a serial entrepreneur, Internet Marketing expert and founder of The Outsourcing Company, an Internet Marketing agency with offices in Aspen, CO and New York. Let’s Do It!, his blog, is read by thousands of people all over the world.

Popularity: 3% [?]

15 Responses to “How Much Should I Spend on Marketing?”

Commission King

27. Aug, 2009

Tracking is absolutely essential. If you can’t track, don’t spend. That’s honestly the biggest piece of advice I can give. TRACK.

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Misty

27. Aug, 2009

It depends on how mature the business is. A percentage of sales is a good measure for most; however, a start-up business needs to spend more in advertising in order to develop leads, repeat customers and referrels.

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Steve Yakoban

29. Aug, 2009

I agree on most of your points except the part about “Old Media Depends on Fuzzy Numbers”. First, you’ve assumed that all traffic and sales come directly from search engine listings. Not so. Second, if you know how to use traditional media properly, there is a lot less fuzziness than you claim. One of the oldest methods is dedicated phone numbers or dedicated URL’s in ads sent to different areas, along with A/B testing and more.

It’s not necessary to knock something else to make your ideas seem valid.

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Health Campus

30. Aug, 2009

For me as newbie, I have to spend more time in learning more about matketing… I have spend much time before and got so many things. Now, I’m still learning more about SEO…But, for me different people will have different time to spend ..

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Trent Sanders

31. Aug, 2009

Honestly, track is the best piece of advice.

However, don’t give up on marketing your product just because a venue isn’t working. Always consider: if someone reliable has told you something works and then it doesn’t work for you; perhaps you need to look at your business model, your service, your product design, your company identity.

Perception is king in this day and age…where you put yourself is only half the battle. It seems more and more of our perspective clients spend money easily on getting them selves out there but no money on what they are putting out there.

Anyway…I digress.

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Michael

01. Sep, 2009

Good question … Thanks for this post.

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Essays

01. Sep, 2009

How much your competitor is spending for marketing always gives you a better idea that how much worth, is it to market or how much risk you can take. But it is not easy to get this information from your customers side. No one gonna tell you, his business secret. I think, we should focus on other sources as well. Like Google adward keyword tool, which tell how much competition exist on certain keywords.

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kelowna

02. Sep, 2009

Very Good question.. Spend and if it dont work then spend some more.. Thanks for this post.

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Miles Technologies

08. Sep, 2009

Great point on how internet marketing takes the guesswork out of determining your return on investment! Miles Technologies offers Google AdWords and Analytics that allow business owners to easily view their exact return on investment from online marketing.

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Briefcases

10. Sep, 2009

This is a great question to answer. Most businesses have no clue how much they should really be investing in advertising. Personally I think if you know it is effective advertising, you should invest as much as possible. Unfortunately a lot of companies don’t properly track how effective their advertising efforts are.

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Storm Trooper Costumes

12. Sep, 2009

When I was starting out I was investing about 80% of my earnings into my business, of which about 50% was directly marketing related. I found this the easiest way to build my business bigger faster.

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buy and sell philippines

13. Sep, 2009

I think when doing marketing, it’s okay to spend some money. Why? because you are trying to build your brand ASAP. SEO will not do it immediately. Its effect takes quite awhile. So if you need immediate attention, why hesitate to spend money on marketing?

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Scott

04. Dec, 2010

If “how much to spend on marketing” could be between 10-15% of sales as a yardstick, is it ‘sales & marketing’ (ie. including your sales force) or just purely marketing? Would a company that has $40 million in sales spend $4 million in marketing alone?

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How Much Should I Spend on Marketing?

15 Responses to “How Much Should I Spend on Marketing?”

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