How much should a small business spend on marketing? It’s a time-honored query, but there are no pat answers.
So says Rhonda Abrams in a post for app.com (Asbury Park Press).
“Throughout my years of working with small-business owners, ‘How much should I spend on marketing?’ is one of the questions I get asked the most. Is 10 percent of my total revenue too little? Is 20 percent too much? Unfortunately, the rules are not hard and fast,” writes Abrams.
In lieu of answers, many small businesses try a scattershot approach which is deadly.
“Most small-business owners just do seat-of-their-pants marketing,” Abrams posits. “One month, they might advertise with Google AdWords. The next they might try Facebook. And the next month, they might advertise in a local publication when a friend suggests it worked for him. Or they just don’t market at all. And in the long run, that is disastrous.”
So how do you figure out how much to spend?
Abrams recommends small business owners use two main approaches to the conundrum: percentage of sales measurements and goal-based budgeting.
“Some companies set aside a certain percentage of total sales for all their marketing activities, including advertising, public relations, brochures, social media and trade shows,” Abrams says. “In other words, if your handmade furniture company had $200,000 in sales in the past year, and you set aside 5 percent for marketing this year, your total marketing budget would be $10,000.”
Abrams admits this is an easy calculation, but arbitrary. Some companies, like Costco, do virtually no advertising (but make mega bucks). Other companies have spent everything on marketing — to great, successful result.
On the other hand, a goal-based marketing plan and budget requires definition of business goals and development of a course of action.
“If you aim to secure 200 new customers, what will it take to acquire them? How much advertising do you need? At which trade shows do you need to exhibit? Do you need to hire a social-media marketer? This kind of marketing budget makes the most sense. It also takes the most work,” writes Abrams.
Abrams has other information and advice, but her final admonition is that the competition can be aggressive, and small business owners need to get in the game.
“Let’s face it, if your competition spends a lot of money on marketing, you probably will have to spend a lot, too,” Abrams advises. “Here’s the most important rule: Develop a marketing plan, set aside a marketing budget and then spend it. You’ve got to get the word out about your business.”