One area that entrepreneurs and start-ups may ignore is marketing. Marketing is an essential part of any business plan, but is often neglected because we erroneously perceive marketing to have no tangible results. It is however a vital part of your business and your start up growth. A Good marketing campaign includes brand development or refinement and will expose your product or service to your target audience in a meaningful way, it can also have measurable desired outcomes when properly tracked and proper metrics are used.
How much you should spend on marketing depends on what stage your start up is currently in, and is an investment with measurable results; you get back what you put in. The first step is defining your target audience and learning about your target audience. Secondly, you should study how your competition markets and advertises their product and/or service, doing this will not only inspire and refine your own marketing strategy, it will also highlight new and creative avenues to target your audience. It is important to remain realistic when studying the competition, especially if your competition is more established. Start-ups are initially cash strapped so having a tight and realistic budget is imperative to your long term success. Your marketing budget should take into consideration the amount of time you or your team members will take away from other tasks to focus on marketing. Here are a few methods you can use to determine your marketing budget:
1. A Percentage of your Total Operating Budget
This number will vary greatly based on several factors. The business that you are in, the product that you offer, and the stage your start up is at will all play a role in your marketing plan and budget. There is a long-standing rule that on average you should spend somewhere between 1 and 10 percent of the annual sales or projected annual sales. If your start up is brand new and potential clients have yet to recognize your brand, this amount should be higher and more along 15 to 20% of your operating budget. Always be realistic about what your start up can afford, and try to save money by doing some of your marketing yourself.
2. A Percentage of Sales
This method is better suited to a start-up that has been operational long enough to have sales and sale forecasts. Basing your marketing budget on realistic sales expectations is effective because it can be based on actual unit sales. A problem with this method is when faced with a decline in sales spending on marketing is usually decreased as well, and this can be a mistake because focusing on marketing may help recover your sales. The general rule for this method is to spend 7 to 10 percent of each sale or anticipated sale on your marketing.
Your spending on marketing should also be based on an accurate anticipated return on your investment. Over spending can substantially harm your business, but not spending enough can be equally detrimental. Your marketing budget should be constantly re-examined. Using measurable metrics to determine what works will help refine your budget and tailor it to your specific needs.