How do you set a marketing budget?

 

There is no one golden rule and it all depends on the size of the business, the strategic aims, the market that you are in (FMCG v B2B for example) and your market share. So how do you set the budget?

Well let’s take each one of the above in turn.

Size of business in terms of revenue will have a major impact on the marketing spend unless you have additional funding to allow expansion and aggressive growth. Start-ups can be stretched for funds, but that does not mean that marketing does not happen. Instead of advertising, a more targeted approach can give the awareness results needed in the target market for early gains. An established business could already have a good reputation and recurring customers, so relationship marketing can make an appearance to improve Share of Wallet figures and to minimise customer churn and therefore maximise profitability.

The marketing should always back up the strategic aims for the business. If the marketing doesn’t why is it being done? So before setting the amount of money to be set, then look at what the business needs to achieve, plan campaigns that are going to hit the goals and move the business forwards. If an amount of money is set before planning, then very often it will be spent whether it was needed or not. If the budget is set based on business case for each campaign then the ROI is much improved, as is the credibility of the marketing team!

FMCG companies spend much more of the turnover on marketing than B2B businesses do. Some alcohol companies spend up to 25% of their turnover on marketing. The differences between vodkas, for example, on blind testing are not that much, but the way the brands are positioned is what makes the difference in which is ordered at the bar or bought in the off licence. B2B businesses, however, tend to have much lower budgets as a proportion of revenue. They can be anywhere between 1% and 5%. The tools used from the marketing mix are to a different recipe than the FMCG’s tools. Some B2B companies may have no formal marketing budget, but instead have a business case rationale, or, in some industries, they use money from other companies, for example a manufacturer will offer money to resellers to market their products.

Market share that is current and market share that is wanted can have an impact on the marketing spend needed. If entering a packed market, then to raise the awareness and convince the conversion from alternatives, will need an impactful marketing campaign. That does not always mean expensive. If a market leader, then the budget is a protective tool to maintaining that leadership, to minimise customer churn.

The way to set your marketing budget will be one or a combination of the above. The important thing is for the results to move the businesses forwards.

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