October 1, 2012
Expert Corner

How much should we spend on marketing?

Meredith Munger

It takes money to make money, particularly in marketing. Simply put, marketing is your investment in raising awareness among potential and future customers. The return on investment in marketing is increased sales — and hopefully you make double or triple your money back. Without marketing, your sales targets may not know they have a problem or desire, or that you are the one to resolve that.

The key word here is 'investment' because it costs money to buy advertising, hire a marketing agency or spend staff time on marketing activities. How much should you spend on marketing?

The Small Business Administration recommends that small businesses (under $5 million annual revenue) should allocate 7-8 percent of its budget to marketing. Thus, the lowest annual marketing budget for $5 million business is $350,000 per year. That's nearly $30,000 per month. Further, the SBA says actual spending depending on your industry and may go as high as 20 percent for consumer-focused industries.

Yeah, $84,000 per month.

However, the CMO Council reported in 2011 that consumer-focused companies (B2C) averaged around 17 percent while business-focused companies (B2B) spent just over 11 percent. Major consumer companies such as food manufacturers spend as much as 35 percent of their budgets on marketing. So if your small business makes kiddie cereal or other consumer product, you might consider spending $146,000 per month on marketing. If you are a $5 million law firm, your competitors may be spending $46,000 per month on marketing. Of course, marketing budgets include all manner of sins. Securing office space with signage that on a highway could be terrific marketing.

That larger point is that marketing is not free. Those glowing television news pieces that feature other companies cost money, primary in the form of a salary for a public relations professional whose job it is to cultivate relationships with the media. It costs money to get your web site placed in the top ranking of Google, either because you paid a professional to optimize your web site or you're paying for an advertising campaign.

The good news is that marketing professionals understand their job is to double or triple the investment you make in marketing. The bad news is you have to cough up the investment in the first place, not just for the first month but for at least six months to a year. It takes time for marketing to yield results. People will not simply see your logo and pick up the phone; they need to see your brand six or seven times before they realize they have a problem or need and understand that you can help them. Like any investment, it takes upfront money and discipline over time to see an incredible return.

Meredith Munger is a principal of Munger & Co. Marketing (www.meredithmunger.com). Reach her at Meredith@meredithmunger.com.

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