How much do you need to invest in marketing for maximum growth?
What should your marketing budget be?
To give you an idea, there’s a relatively simple calculation you can do. Start with your total revenue. This can either be gross or estimated. For the sake of easy maths, let’s say your company’s gross annual revenue last year was £100,000.
Next, you need to decide whether you put your business in the ‘new company’ or ‘established company’ camp.
If your business is established, you should have a bank of loyal, existing customers. If this sounds like your company, then you’ll want to allocate between 6-12% of your gross revenue to marketing.
However, with a new company, you need to allocate more to your marketing budget because you’ll need to work harder to build awareness. Marketing will build your brand, get you seen by the right people, and start generating leads – but a lot of work needs to be done before that happens. When you’re in the stages of building brand, the rule of thumb is that between 12-20% of your gross revenue should be allocated to your marketing budget.
So back to our example of a business with a gross revenue of £100,000. If you decided to allocate 12% to your marketing budget, this is £12,000 for the year or £1,000 per month.
Of course, this is just a rule of thumb and those are quite big ranges. Want to spend a million pounds on marketing? You’ll get million pound results (with the right team in place). The same goes for being on a tighter budget – results are relative.
How much you actually choose to spend, and on what, will depend on quite a few different factors.
Let’s have a look at those now…
What affects your marketing budget?
Keeping up with the Joneses
Just because your closest competitor is spanking loads of cash on a big influencer marketing campaign doesn’t mean you have to follow suit. But to be able to compete in the market, you do need an understand of what your competitors are doing. Unless you spend more or shout louder/better than your competitors in a highly competitive market, you won’t be able to compete. If you have a small budget, you’ll just have to be clever about how to spend it.
How strong is your brand?
Brand is not just a marketing buzz word. Some businesses might scoff at the idea of building their brand but what about if you switch out the word ‘brand’ for ‘reputation’. Make a difference? Show us a business that doesn’t care about its reputation.
Your brand is all about the impression you make. It needs to do two jobs. One, set you apart from everyone else selling the same products and, two, paint you in a positive light.
If your brand needs work, it might be a good idea to get some help – potentially from an agency who can help you develop and build your brand because this is the foundation for all your marketing efforts. And yes, this does involve spending money, but it’ll be worth it!
Even if you’re doing pretty well without a strong brand, think about how building your brand could take your business from strength to strength.
Have you defined your target market?
If you don’t know who to market to, how do you know how to market to them? Your target audience needs to form the basis of your marketing strategy so if you haven’t got this down, you’re going to have to go back to basics.
This is somewhere else that it might benefit you to spend a bit of money. Doing the necessary research to define your target market is time consuming and do you even know where to start? If the latter sounds like you, it might be time to call in the experts.
Once you know who your audience is you can start to understand how you’re going to target them and how much this might cost.
What do you sell?
At the risk of stating the obvious, your approach to marketing is going to be determined by what you sell. A mobile bar business that pops up at festivals and caters at weddings is going to market themselves very differently to a law firm. And the costs involved will be different too. What’s the mix of offline vs online? Do you need to spend money on hard sales collateral like banners and leaflets? Is the PPC landscape super competitive making the cost per click really high? These are all things that you’ll need to take into consideration when deciding on your marketing budget.
What are your business goals?
How much you need to spend on marketing will, in part, be decided by your business goals.
Do you have ambitious growth plans? If your business grew by 15% last year having spent £50,000 on marketing and this year you want to grow the business another 30%, you’re going to have to increase your marketing budget by 100%, so £100,000 spend. You might not need all of that, but better to budget for it and not spend, than not budget. You can’t expect your marketing to deliver more for the same.
Want to increase sales revenue? You’ll either need to increase prices, sell more to your clients, or sell to more clients. You’ll want KPIs around increasing leads and increasing average order value. How you intend to do this will guide how much you need to spend.
Hopefully you have a clear idea about what your business goals are and what you want to achieve with your marketing.
Think you’re ready to make the investment? Read about who you should choose to look after your marketing – an agency, a marketing manager or a social media manager. Whatever you do, please don’t leave it all to the intern.
Still not sure where to start?
If you need a bit more help working out how much you need to spend, or how far your ideal budget could take you, get in touch and we’ll help you work it out.