The most common mistake of a start-up or a small business is ‘not budgeting’ for marketing. Investment is generally in technology, manpower, operation etc., but Marketing is “no no not now” budget. It is not understood that allocating marketing spend is as important as allotting budget for rent or payroll.
There are many ways to set marketing budgets. One of the most popular is to set a % of projected sales. A profit making company can set a % of previous year’s gross margin. Generally the spend is anywhere between 2% to 10%. Some products have seen a marketing spend as high as 20%. A new company, a new market or a new product will need a higher marketing spend. Larger companies and established products have a different spend pattern. IDC’s annual Marketing Investment Planner, which analyses technology marketing spending based on a survey of 95 large tech companies reports, average MBR (market budget ratio) of 4-5% of revenue on marketing, with software vendors spending the most at 5.5%, hardware makers spending 2.3%, and IT service firms at 1.1%. Equally important is to decide on how to spend the marketing budget.
A successful marketing budget has two parts, a fixed budget and variable. You can also define the ratio of fixed : variable. Below is a simple checklist for marketing budget.