9 Ways to Determining Advertising Budget
9 Popular Ways to Determine Your Marketing Budget
1. Percentage of revenues
This is by far the most talked about method of determining your budget. This method works by taking a fixed percentage of your revenues (that’s every penny your company brings in) and allocating that amount for marketing. The most commonly used numbers are 5-10% (generally for bigger businesses), 20% (used more for small businesses), and 2-5% (very large companies). Picking the percentage that works best for you will probably take some trial and error.
Pros: It’s an easy and understandable answer. It makes for great cocktail party and networking event rumors.
Cons: It really isn’t very accurate. In fact, it’s not accurate at all. Also, with small or new businesses, it can completely break down if you don’t have much to show for revenue. Oh yea, and it will vary wildly depending on your profit margins.
2. Percentage of net sales
Similar to taking a percentage of revenues, this determines your marketing budget as a fraction of your net sales. This method is a little bit less aggressive than the last method, since you exclude expenses from your calculations. As with the first method, this method will take a lot of trial and error to find the percentage that works well for your company.
Pros: It’s also an easy way to create a marketing budget, and it might be a bit better than percentage of revenues for some industries (depending on profit margins).
Cons: It’s a broad generalization that isn’t very accurate.
3. Everything you can afford
In the realm of fast-growing small business, this is definitely one of the most popular answers. The idea is to set aside the money you need to keep your business alive (presumably your family too), and throw everything else at building popularity. Proponents of this budgeting method will say that it helps grow your business quickly, and that you can worry about other things once you’re established in the marketplace. If you choose to budget with this
1. Percentage of revenues
This is by far the most talked about method of determining your budget. This method works by taking a fixed percentage of your revenues (that’s every penny your company brings in) and allocating that amount for marketing. The most commonly used numbers are 5-10% (generally for bigger businesses), 20% (used more for small businesses), and 2-5% (very large companies). Picking the percentage that works best for you will probably take some trial and error.
Pros: It’s an easy and understandable answer. It makes for great cocktail party and networking event rumors.
Cons: It really isn’t very accurate. In fact, it’s not accurate at all. Also, with small or new businesses, it can completely break down if you don’t have much to show for revenue. Oh yea, and it will vary wildly depending on your profit margins.
2. Percentage of net sales
Similar to taking a percentage of revenues, this determines your marketing budget as a fraction of your net sales. This method is a little bit less aggressive than the last method, since you exclude expenses from your calculations. As with the first method, this method will take a lot of trial and error to find the percentage that works well for your company.
Pros: It’s also an easy way to create a marketing budget, and it might be a bit better than percentage of revenues for some industries (depending on profit margins).
Cons: It’s a broad generalization that isn’t very accurate.
3. Everything you can afford
In the realm of fast-growing small business, this is definitely one of the most popular answers. The idea is to set aside the money you need to keep your business alive (presumably your family too), and throw everything else at building popularity. Proponents of this budgeting method will say that it helps grow your business quickly, and that you can worry about other things once you’re established in the marketplace. If you choose to budget with this