Neology | Marketing Communications

A company’s marketing budgets can vary greatly, depending on the economy, the industry it is in, whether or not it is selling to consumers or businesses, whether it’s launching a new product or continuing to market an established product, and so forth.

But what if it’s an early stage company that is just beginning to focus more attention on raising its visibility? What if it never really had an official marketing budget? If your company is in that situation, here are four budgeting approaches that can help:

Flat Dollar Approach
Particularly useful for early-stage businesses, the flat dollar approach bases marketing budgets on what the company thinks it can afford. This approach is usually most effective in budgeting for specific projects that are one-time expenses, such as exhibiting at a trade show.

Defining a flat dollar amount may be challenging in the first year of a business, since there are no past records of sales and marketing expenditures. To help you define appropriate budgets, contact others in the field, such as partners or consultants, to inquire about cost estimations. The last thing your early-stage business needs is large cost overruns.

Percentage-of-Revenue
Allocating a percentage of sales revenue is one of the most popular methods for developing a marketing budget. The average allocation can range anywhere from 1% to 12% of annual projected sales. If your business is selling to consumers, typically budgets need to be greater. If your business is launching a new product or service, advertising and publicity needs are greater, so the percentage will also increase.

The main advantage to using a percentage of revenue approach is that the marketing budget will increase, or decrease, with the sales revenue of the company. The marketing budget will never spin out of control and deplete sales revenue. However, your marketing budget can change from one quarter to the next, making it difficult to stick to long-term plans.

Matching Competitors
Another method for creating a marketing budget is to analyze and estimate what the competition is spending. This is another simple way to set a budget, since maintaining costs comparable with competitors keeps the business in line with others in the field.

However, this method also assumes the competitors are spending the right amount and have a comparable business philosophy and plan, product mix and target audience. Even if you do not use this method, it can be useful as a checking mechanism to ensure that your budgets are not too low or too high.

Marketing Plan Objectives
The final approach uses the objectives in the marketing plan (such as the number of opportunities you’re aiming to achieve, etc) to determine the marketing budget. The budget is developed by estimating the expenditures needed to achieve the desired marketing objectives.

Although this method of budgeting can be the most realistic way to align budgets with the needs of your company, it is can also run headlong into competing financial constraints for a given year. Thus, it may take a little more effort to defend it.

Good luck!