Ask any Marketing Professional, Advertising Consultant, Digital Guru how much a business needs to spend on marketing, and the response usually goes something like this... “it depends on your budget, who your target market is, what the marketing is for, what you want to achieve, what mediums you want to use …..”. What they really mean to say is - how long is a piece of string. It’s not a mystery so much as a puzzle when we talk about marketing budgets. Answering that question for business involves finding the right information to piece together that puzzle. The spend on marketing is largely dependant the product or service category a business is playing in (for example, high demand high involvement products have different needs to low demand, low involvement products).
Explosion of choice
What to spend marketing funds on is based on, depends on how people generally consume information everyday. The way that we are advertising and displaying information to each other now, is predominantly digital. This is backed by the AC Nielsen report (1) which showed in 2015 Australian businesses spent $AUD6 billion on digital advertising (growing at 25% year-on-year). With a significant spend in all other ways to advertise but no more so than digital (broken out into three areas: search, display and classified ads). In the same year $AUD 1.25 billion was spent on mobile phone advertising, followed by $AUD 3 billion on metropolitan television, and $AUD 2.1 billion on printed newspapers.
Piece of the pie
It’s clear Australians want to consume their media online and the burning question that a Business Leader want to know is - how much will it cost. How much of their revenue is required to seen, heard and remembered. The team at One Week At A Time have a basic rule of thumb for small to medium size businesses who haven’t an endless supply of marketing dollars and/or marketing teams to support their business. We believe that the budget should be based on a percentage of sales revenue, dependant on the industry and competitive activity. It’s a “broad” definition but a realistic one.
The actual percentage can change dramatically. For established business it may be 5-6% of sales revenue. Start-ups on the other hand, are likely to spend 200%+ of sales revenue. The point is, whatever the situation, the budget needs to be split like this:
- 40% of total spend on advertising and marketing on New Clients
- 60% of total spend on advertising and marketing on Existing Clients
Retain to sustain
Retention strategies often get ignored in business. The assumption that the current customers are satisfied and likely to return back to the business is a misguided notion. Retaining customers, creating strategies to keep them coming back again and again, is the lifeblood of small to medium sized businesses. Customers who are likely to spend more with a business are those who have established a relationship, who know the product already, and who have had more than one positive service experience. Placing 60% of the advertising and marketing budget their way is put very plainly: good business practise.
Back to the piece of string
We know we need a budget for marketing and advertising (how to do customers know you exist if you don’t tell them?). And we also know what kinds of ads to be buying - online and aimed largely at the current customer base. The length of the string now becomes shorter. All that’s left is to work out these questions(2):
- What do I need to get out of my advertising/marketing? (leads, sales, awareness?)
- How much are you currently paying to compete? ($2000, $10000 etc)
- How fast can I afford to grow?
- Can I take on the risk? (marketing is a social experiment, are you okay about that?)
- Can I gather statistics to minimise risk? (Pay per click, User Experience, Foot Traffic, Eyeballs etc - information on how many people the advertising is likely to be shown to)
It’s also very useful to find out how much the competition is paying to compete in the same market conditions(3). For example, how much top advertisers and top industry advertising categories are spending in overview reports(4).
Alternatively, for small to medium sized businesses check what the specific benchmarks are for the industry. The most useful information can be found on Australia’s Benchmarking Data and Research site(5). The detailed report on specific industries will show a host of information such as the average gross fees, gross profit, annual turnover, staff hours, staff hourly rates and the average advertising and promotional spend. A sample report can be viewed here(6).
Be in it to win it
Once a Business Leader is regularly placing a reasonable budget aside to use in marketing and advertising, perhaps assign an internal Team Lead test and measure each campaign and each placement. Find out what the customer base for the business responds to best. Throwing your hat in the ring doesn’t mean going into it blindly. Measuring the sales revenue increases from each sales campaign will provide a baseline for competing. Remembering all along, to get the highest share of wallet and be known in any market - you really do have to be in it, to win it.
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