Whether you’re a startup or an established small business, one of the toughest decisions that you will make is how much money you are going to spend on your advertising and marketing communications. Prospects need to be acquainted with you, need to know what you do and how your product or service will benefit them. They need to know where to find you, and how to contact you. But how much should you spend to get that word out?
For companies who are just beginning a communications program, the tendency is to decide where you think you need to advertise, and then spend whatever it takes to get to be there. You rely on your instincts to tell you what communications vehicles you ought to be using, and then price out what it costs to use them. Perhaps you do know your market very well, and you won’t waste a lot of time, money and energy in the wrong places. However, this approach has a definite flaw. You are not taking into account either what your company can really afford, or the dynamics of the marketplace, both of which are important factors that should play strongly into your thinking.
There are other, better ways of determining your marketing budgets, and at least one of them just may fit better into your company’s strategies.
1. Take a look at what your competitors are spending, and establish your budget based on the competitive marketplace.
This approach works well when your competitors are around the same size that you are, and when they are pitching the same size accounts that you are pitching. If everyone is spending at a fairly similar rate, then you can be comfortable that you know what the price of entry is into the market. You don’t necessarily need to use the same promotional vehicles that your competition uses, but you do want to try to capture a comparable share of voice in your prospect’s mind. The downside of this approach is that it really cannot be implemented effectively if there are only one or two very big spenders in your particular area. As a smaller business person, you cannot outspend or even match their big budgets, and so you must find a more creative way to gain mindshare among your prospects.
2. Take Approach #1 one step farther, and factor in your relative position in the market compared to the competition.
For this method, you still have to be aware of what your competitors are doing, but now you must also acknowledge that you need to be spending somewhat more if you are a late-comer to the market, or if your goal is to improve your market position. Conversely, you can spend less if you are already one of the leaders in your market. Take a look at what the average spend rate is in your product category, matching your geography and target audiences, if you can. Then think about using a dollar range that is 5% plus or minus that average, depending on whether your position is where you would like to be or not. Once again, you can be successful here if everyone in the market is around the same size, and you can be comfortable in their spending patterns.
3. Base your communications budgets on a percentage of your projected gross revenues. Now you are taking into account what kind of monies you will have available for communications, and also you are leaving yourself the flexibility to revise and adjust your budgets as your situation changes. If your program is very successful and sales increase, you can increase your budgets. In slow times, you can cut back, but still maintain a presence in your marketplace. You won’t spend yourself out of business, but you still need to take into account your particular market. The percentage that you will want to work with will vary by industry, but you should think about what it will take to be visible in the advertising media that your industry uses.
Any of the three methods outlined above will bring a sense of discipline to your marketing program. Whether you choose one of these options, or choose to work out a combination of techniques, you can feel more confident that your marketing efforts reflect a prudent business base, and that they integrate well into the personality of your company and the dynamic of your marketplace. And those are ultimately the keys to a successful marketing communications program.