When it comes to working out how much money should be spent on your marketing activities, there isn’t a perfect answer for every business.
Deciding on your budget depends on a variety of factors, from your industry, size, current trends and how much you can realistically afford to spend.
While we would love to pull a number out of the air, it’s unfortunately not that easy. So instead, here are some top tips that will help you determine your own ad spend:
Use the 5% rule
First, let’s define ‘marketing spend.’ This refers to all costs for the marketing, advertising, public relations and any other promotional activities your business performs: for example, Google Ads, social media, print and digital ads, sponsorships, video and content marketing.
While the ideal budget will depend on industry and current marketing objectives, as a general rule-of-thumb, you should spend around 5 percent of your sales revenue on marketing. There is a potential to increase this to 10-20 percent if your company is looking to gain a greater market share or launch a new product.
Of course, this isn’t a fixed rate and there will be times when your business will need to spend more, such as in the early days of your company and peak periods such as holidays.
Decide on your marketing channels
Choosing the right advertising media and using it effectively will make a substantial difference to your company, helping you build awareness and drive a positive experience for your customers.
So let’s start by working backwards, and take a look at your historical data. By analysing current channels and how much revenue they have brought in, you can determine how much your investment needs to be this time around. Consider which channels have added value in the last 12 months and which have not.
Now you’ve decluttered your strategy and removed underperforming channels, you can invest in something new. Consider the digital trends of 2021 and which platforms would be right for your business and help you stand out against competitors.
Combine brand building efforts with sales activation
Marketing and sales is one of the most important parts of a business budget. You might have the most incredible product in your industry, but if no one knows about it, your company will not make sales.
It’s essential that you find that balance between investing in getting your name out there and building your brand, and all the other costs of running a business. Luckily for us, marketing experts Les Binet and Peter Field have already done the grunt work:
In their report, “Media in Focus: Marketing Effectiveness in the Digital Era”, Binet and Field found that businesses who devoted 60% of their marketing spend to brand building, and 40% to sales activation, achieved the best results.
Check out our quick explainer of the data on optimising your marketing investment for more detail on Binet and Field’s Golden Ratio.
Pay special attention to digital advertising
Marketers and business owners can now reach consumers in more ways than ever. There are an increasing number of marketing channels, with digital ad spend in the UK likely to reach £15.08 billion by the end of 2020.
As we mentioned above, one of your business’s biggest priorities should be on building a strong brand. And allocating a large portion of your marketing budget towards digital advertising is a great way to raise awareness. This should be your highest performing channels especially and could be your digital display, paid social, or even video, which is becoming increasingly popular among smaller businesses.
While digital has undeniable industry clout, it’s important you don’t neglect traditional advertising. Since the Covid-19 pandemic, two-thirds of small businesses have returned to traditional marketing techniques. And most businesses now use a winning combination of both traditional and digital marketing, which delivers three times the effectiveness.
So, how much should you spend on advertising?
While there is no one-size-fits-all answer, the 5% and 10% rules is a broad blanket approach that will cover your marketing needs to begin with.
The best thing you can do is analyse what your business (and your customers) need. Consider what platforms are working for you, how well your customers are engaging with them and whether new tools would help you better communicate.
To help you review your output next time, never stay complacent. Monitor your customer analytics, looking for strengths as well as weaknesses. By doing this you can keep your marketing budget under control.