Know-How Exchange : Advertising/PR

The amount you should spend on marketing depends on what your business objectives are, what it's worth to attract a new customer, and what your competitive climate is like. The range is very large -- from less than 1% to more than 50% -- so there really are no meaningful averages or norms.

You really need to start by determining what you're trying to accomplish: What does success look like for your marketing program? Then comes the strategy: How am I going to do this? What media will I use? How many touches will be required? What does the selling cycle look like? Etc.

Then you figure out what it's going to cost to implement the strategy. If it's more than the value of the customers you'll attract, then you'll need to either modify the goal or modify the strategy. It's an iterative process.

When you're all finished, you can see what your budget looks like, divide by the anticipated sales and determine what % of sales you're spending on marketing. If it's between 0.5% and 50%, then you're probably on the right track.

Dave, one more thought: There's a pretty tight relationship between margins and marketing spend. When you have higher gross margins, you can spend more on marketing (because the value of a new customer is greater). That's why Pricing is a key element in the marketing mix.

You may want to consider some price elasticity testing as part of your look at marketing spending, because if you can justify pricing changes (to generate better margins) then you can increase marketing spending without a corresponding increase (or decrease) in the percentage of sales.

Sometime the Pricing variable is left out of the equation, and that results in a skewed look at the metric you're suggesting.

As Randall stated, there are many VP of sales AND marketing. That has puzzled me quite a bit for awhile. Many companies confuse the two and depending who is running the show, the budget gets mangled in between and arguments break-out often between the departments, even if there are separate depts.

As Phil indicated, the marketing budget vary quite a bit from industry to industry. Generally, B2C has higher budget in advertising, PR, sponsorships, social responsibility programs, promotions, etc. Some even include the trade show budget, packaging, store fixtures, etc., that has anything to do with communication that is aimed at outside; that include investor relations and some even in internal communications. Are you a manufacturer for other marketing companies or do you market mostly to consumer? That would mean a world of difference in marcom budgeting

I have seen budgets where software industry will spend well over 55% of the total revenue, beauty products spend quite a bit. A few years ago, the auto industry, by far had the biggest budget. Unilever spends over $2B, not M. these are B2C, B2B is totally different in many ways.

The bankers usually have a book (forget what they call it) that shows them what each type of business/industry spends and how to operate the company in their market. Perhaps you can look into that.

if not, you simply have to study the competitors as to what they are spending their money on. Start with # of people, add office space, management time, etc. Most publications with over a mil circulation, the ad reps can tell you roughly where they are advertising in consumer side. If they have outside agency for PR or otherwise, you can get a guesstimate on what the fees would be by researching their size, past client, etc.

In order to justify the budget, most quantifies, establish ROI's, but these are not exact science. These will not work for you unless you have a matrix of measuring what and when, in regular increments. Usually, year to year would be best for you. such as brand recognition, brand equity and strength all can be measured by conducting quantitative and qualitative research.

As it was the case with T..... in NH three years ago(shoe and apparel company), by the time they realize that they are getting a ton of returns from the retailers, realize that they are loosing the edge, market standing, or brand recognition, it usually is too late; the brand is already on the slippery downhill slide. Most marcom people will tell you in order to re-esblish the position, and build the eroded brand equity and position, the "investment will be several multiple of current steady budget, that the company steadily spent on the marcom each year.

As with many things in marketing, set goals and specific objectives in line with the sales goals, other company objectives, draft a plan and budget that C level folks would and can buy into or incrementally buy into. If you don't have any system in place, the questions from C level folks, especially CFO's, "I cannot justify this budget based without clear ROI" can annoy the heck out of you.

There are many articles in the archives here that tell you how to educate C level folks on marcom as well as become friends with the CFO's. Good marcom execs usually find out how well C level folks know and understand marcom before they take the job unless you don't mind uphill climb from the get go.

good luck and let me know if you want to chat.

Good luck.