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Posted on January 2, 2018 | Randall Erkelens
This question is asked by clients every day. It’s a question as old as marketing itself. What should your business spend on marketing efforts not just in 2018, but in any year?
If you Google the topic, there’s a mass of information citing industry experts far and wide, suggesting a variety of options. Still, Philosophy will throw our hat in the ring, offering an agency perspective. With 30 years of experience as a creative director, I have noticed what has worked best for a varied client roster in different verticals.
The U.S. Small Business Administration suggests a spend of seven to eight percent of gross revenue. Seems easy, right? While it may be a good rule of thumb to start, I’ve seen clients spend anywhere from one to 25 percent on marketing. I read case studies where start-ups can spend as much as 40 percent and in some cases, more. It all really depends on your business, the market you compete in, and where and how you should market your product or service. There’s no magic list of every industry with corresponding spend. But one thing is certain, a few general guidelines will help guide your decisions.
HOW MUCH TO SPEND ON MARKETING
At Philosophy, we advise our client partners to invest an average of 10 percent annually on marketing. This is based on 17 years of history at Philosophy. You may think that’s a lot off the top. But don’t forget to include all of your marketing efforts when thinking about this number.
We conduct our own research on the effectiveness of our marketing efforts with our client partners. On average, we have heard that a smart investment against marketing and public relations will almost always pay off from break even to 193 percent return. It varies from industry to industry and product to product. Don’t forget some aspects of marketing aren’t measured as easily as others. Brand awareness can pay it forward for years or decades.
WHERE TO START
It starts with your brand mark (e.g. logo). If you don’t have one or need one revised, that’s something to consider. From there, marketing components may include your website, collateral and anything else you put your logo on like apparel and vehicles. Add-in your advertising costs both traditional and online, and you’ve got yourself a healthy budget.
If you’re starting a new business or relaunching a brand, think about 20 percent for your first year to get up to speed. Generally, that first year will require heavier lifting creating brand standards, website, and other marketing materials to build the brand in a way that resonates with your target audiences. A new brand or re-branding effort will typically need some upfront strategy around naming, logo creation, research, before moving on to creating collateral and an online presence.
If you’re rebranding, a great place to start is doing a brand audit. Depending on the age of your brand, you may already have some research, core values and know your consumer. But too many times when client partners thought they knew their consumer, they later found out through research that they didn’t have the complete story.
We’ve found conducting some research/focus groups/etc. are a great way to uncover how to best reach your current and future customers. Just swapping out your logo for a new one without thinking about why is a typical mistake some make. A typical brand audit session and subsequent findings that lead to a new brand mark and communication strategy can run anywhere from $15-60K.
You may think it sounds like a lot, but consider that a brand grounded in research and market expertise is far better poised to stand the test of time and attract the right customer for the right reasons.
At the heart of your business is your brand. And it’s far too valuable to invest $50 on some online logo site that pumps out 100 logos a day.
The great thing about targeting a budget as a percent of annual revenue is flexibility. As your revenue fluctuates, your spending follows.
WHERE TO INVEST MARKETING FUNDS
Now, for what you really want to know after a percent: WHERE to spend your marketing dollars. While there’s no “one-size-fits-all” answer due to the variety of business landscapes, here are a few guidelines:
EXPLORE DIGITAL PROMOTION OPTIONS
For the last 5-10 years, spending against traditional advertising tactics have been dropping by single digits each year, while digital investments are growing. The total percent isn’t going anywhere, it’s just shifting to more digital solutions as more of the population can be targeted individually via their screens.
Since screen-time is up, about 30-41 percent of marketing budgets are spent online against efforts like search engine marketing. Other methods like online display ads, remarketing and pay per click take up the lion’s share of budget. In fact, 17 percent of digital spending is against social media.
DON’T OVERLOOK TRADITIONAL METHODS, TOO
This is a double-edged sword though. Because while it’s true more spending IS going to digital (and for good reason), it also means traditional methods are being overlooked. For example, if your particular customer base can be reached with direct mail, why not use that? The increase in digital spending has left methods like direct mail out of the consideration phase. Have you noticed how much fewer pieces of mail you typically get in your mailbox? So, crafting the right message and design may standout better today than direct mail has ever performed in the past for that reason alone. And if you have your own mailing list or can buy one to reach your customer base, that would be a good strategy. But again, it all depends on your particular business goals.
A good reputation and market leadership position can increase your company’s value at sale. And it all starts with your brand. Don’t take it lightly.
Don’t just assume you don’t need to market continuously every year.
You wouldn’t stop paying your utilities or insurance. You can’t stay in business if you stop paying your vendors, suppliers, or staff. Consider your annual marketing investment as just that–an investment in your business future. Because the day you stop looking for new customers, is the day your business will die. And the best way to ensure the future of your revenue stream is to retain and grow what you have. Marketing is the path. And investing annually and consistently is the best way to stay relevant, communicate your value and win in the marketplace.
- Randall Erkelens