Archive for July, 2009

How Much Is Enough?

“How much should we budget for marketing and sales?” is a question we are often asked. The answer is, well…it depends.

Marketing Budget

First of all, it is important to establish a preliminary marketing budget based on the type and maturity of your business. If you’re a high-margin business, you can make a case that you want to continue to spend until you begin to see diminishing returns on your investment. Along that line, another important point to consider is the lifetime value of a customer. Establishing appropriate metrics is the first step in knowing when enough is enough.

As a rule of thumb, a new business trying to establish itself, needs to think 5 to 10% of projected gross sales (remember – gross sales will most likely not be that high a number compared to where you would like it to be in 3-5 years). Because of this, we recommend spending at the level of your projected sales – not last year’s actual.

On average, if you’ve been around awhile, we’d recommend lowering this figure to 3 to 5%. If you are an established business, operating for some time now without much marketing, count your blessings…and set aside perhaps 2 to 3% of projected gross sales. While it’s nearly impossible to give you a rule of thumb for marketing due to so many variables, allow me to make a few comments about what is ultimately needed.

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Posted by John Harden  July 31st, 2009