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How To Set A Marketing Budget

February 20, 2017

Marketing Budgeting.jpgYou’re not going to like this. No one ever does. But setting a budget for marketing is always a difficult task. Business experts and academics, all smarter than I am, have, in the past, advanced formulas and prescriptions for creating budgets appropriate to a company’s size and its marketing challenge. I have no idea if any of those recipes work. The Small Business Administration notes that a business with less than $5 million in annual revenue should allocate between 7-8 percent of that revenue to marketing. Furthermore, they suggest splitting those resources between brand development (websites, blogs, collateral) and promotional activities (campaigns, events, etc.) But what they don’t explain is how they come to that figure in the first place. Why is 6.9% too little? Why is 8.1% too much?

Years ago, a very wise man who had built a very substantial, multi-brand business, gave me his formula for determining marketing budgets. Again, it will take a brainier brain than mine to tell you if this actually works. But it’s a simple and effective method and I have used it myself and found it to be a useful guide. I call it the Three-Line Approach.

Start by drawing three horizontal lines on a piece of paper.




On the first line, write down what you think you can spend on marketing. Think of all your revenues and how your profits are allocated. How many funds can you shift to marketing? Are there any savings that could be utilized for marketing? Can (should) any capital be borrowed?Access all the available monies, sum them up and write the resulting figure on line one.

Now, cross it out. Don’t erase it. Just cross it out with a single line so you can still read it. Because the figure on line one is wrong. It’s too low. Whatever you’re selling, the figure on line one is not enough to market it effectively. So start again and, this time, dig deep. Find the money anywhere you can. Consider cutting your own salary. Cut till it hurts. Now, sum everything up and write the resulting figure on line two. Typically, it will be 5-10% higher than the number on line one.

Finally, take the number on line two, increase it by 20%, and put that figure on line three. That’s your new marketing budget.

The benefit of this approach is that it effectively counters the natural disinclination to dedicate any money at all to marketing. In most small and middle-sized businesses, marketing is treated like a poor step-child. The money allotted to it is woefully inadequate and only begrudgingly allowed. In recessions, marketing budgets are cut to the bone, in direct opposition to the sage advice of every business book and management guru – ever. Yes, yes. We all know that economic downturns are precisely the times when marketing budgets should be increased. But no one ever does that.

The Three-Line Approach reminds us that whatever we’ve budgeted for marketing, it’s not enough. There’s always at least one competitor out there who’s spending more.

See? I told you you wouldn’t like this.

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