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Posted on 02.18.2010

How Much Should You Spend on Marketing?

How Much Should You Spend on MarketingBig and small businesses executives know investing in some kind of marketing is imperative, but the question is… how much do you spend?

Recently one of my clients was preparing for a budget planning meeting and asked me how much they should allocate for marketing and advertising. That’s a good question, but the answer depends on what kind of business you are talking about.  For instance, organizations like acute-care hospitals have traditionally used the figure of three percent of gross revenues, but not all industries have a standard or best-practices number. In order to answer my client’s question, I conducted some research and discovered this not an easy question to answer.  In the process of my search, I did stumble across a few interesting articles and Web sites. An article in BusinessWeek suggested companies should begin the process by determining the advertising-to-sales ratio in their particular field. Since this information may be difficult to find, the article suggested starting at five percent of your gross revenue and adjusting the projected spending after evaluating market size, media costs, competitor spending and company growth projections. Start-up companies generally tend to spend more of their budget on marketing, and this figure could range from 5-15 percent. The Web site www.entrepreneur.com also provides an informative article called Calculating Your Ad Budget that provides  a numeric formula companies can use to help determine how much they should spend on marketing and advertising. Developing a marketing budget is a process that most businesses go through on an annual basis. Not only must they determine the right amount to spend on marketing, it’s also crucial to determine a way to measure the success of the  marketing efforts and the return on the investment. These efforts will help you determine if your company needs to be more aggressive or can try to reduce the budget the following year.

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