When entrepreneurs and small business owners think of their first marketing budget, they are often at a loss as to where to start. Without any prior experience or history with marketing, they are left with little guidelines as to how to come up with that first marketing budget. How will marketing expenditures be measured? What marketing initiatives should be pursued? How will their performance be tracked? How is the marketing budget put together? Well, coming up with that marketing budget isn’t as difficult as it sounds. It’s how you manage that marketing budget going forward that ultimately dictates success or failure.
Keep It Simple
Let’s keep this entire process simple. You’ll likely find that coming up with that first marketing budget is much easier than you thought. The key is to come up with that initial budget and then gradually improve it over time. We’ll answer each one of those aforementioned questions, one by one.
1. How will marketing expenditures be measured?
Marketing expenditures are measured by taking the amount the company spends on marketing and dividing it by the company’s sales. This is then converted to a percentage and represents the company’s “marketing as a percentage of sales”. The company’s sales can be based on future sales, past sales or current sales.
2. What marketing initiatives should be pursued?
When thinking of where and how to spend your company’s marketing expenditures, concentrate on how best to reach your customers. Surprisingly, a number of companies find this the most difficult part. However, to simplify this, ask yourself where your customers congregate? Is your business reliant on B2C (business to consumer) sales or B2B (business to business) sales? Next, is your current market and industry size small or large? Do you need to reach your customer through online searches, or should you rely upon more conventional marketing approaches like print, radio, magazine advertisements and trade shows?
3. How will marketing performance be tracked?
When I refer to “marketing performance” I am referring to how those marketing plans bring in potential business. Tracking the performance of a given marketing initiative is fairly straightforward. For instance, if your company attended a trade show, and generated 100 customer leads, you would then determine what amount of business was generated from the 100 customer leads.
Make sure to measure your marketing performance on conversion – not just the potential of reaching customers. In this sense, of those 100 customer leads, how many actually went ahead and placed an order? What was the resulting business from those customers who actually purchased your product or service?
To elaborate on this, let’s assume that another marketing initiative brought in 60 customer leads but, the conversion rate was higher. In the case of the 100 leads from the trade show, only 30 ended up buying product. However, this other marketing initiative had 50 customers buying product. In this case, the conversion rate is higher – but you’ll only know whether it was truly a better marketing initiative after you’ve properly measured the resulting business.
One tool that can help you choose the right campaigns and strategies is the stage-gate model.
4. How is the marketing budget put together?
Putting that marketing budget together is perhaps the easiest part. It’s best to measure marketing performance quarter by quarter, but if this is too long a period, you could do it month by month. Start with totaling expenditures on each marketing initiative. Include not only those trade shows, but those brochures, catalogs, web-site design and maintenance costs, as well as those sales training seminars.
Based on my experience, there really isn’t any limitation to what a company should spend on its marketing. The key is to isolate those marketing initiatives that have not only the highest conversion rates, but that bring in the most business.
Learn about five low-cost marketing strategies.
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