Setting Your Marketing Budget

We've talked about building a marketing calendar before, but how do we budget to support that plan? That's the next question I hear the most.

COMFORT LEVEL

You'll hear everything from budgeting 2% of your gross profit to 10% of your net sales, and everything in between. The truth is the most effective number is whatever you're comfortable with. It doesn't matter what your industry standard is. Your standard should be driven by your comfort, but why? 

Effective advertising is as much about your behavior as it is the amount of money you spend. Let's say, through my amazing sales skill, I talk you into a budget of $2,000 a month for advertising even though you are more comfortable with $500. You will spend $2,000 the first month with a trembling hand. As we've discussed before, people are not going to flock to your store within the first month. Marketing is a long-term game and takes a while to really ramp up. You'll get some response that first month, but it may or may not pay for the $2,000. The discomfort scares you, so you cut back and don't do anything the next month because of fear.

Will $2,000 a month be better for you long-term than $500 a month? Absolutely.

Will $500 a month be better than nothing? Of course.

This is why I tell people to start with what they are comfortable with. It may be $50. It may be $50,000. Whatever it is, you have to be okay spending that money every month.

CONSISTENCY

Some people want to budget a good amount for the first few months of business and then cut back after it gets going. You need to stop that thinking now. You'll always be advertising. Even at the top of your game when you lead the industry, you will still need to advertise. I always point to people like Apple and Coca-Cola, two companies leading their industries who still spend large fortunes on advertising every year. They understand it helps them stay on top.

There are some who think the opposite, and think, "I'll advertise when I'm profitable". Understand that line of thinking is wrong, and check out this post for a good explanation as to why.

You need to plan on advertising consistently for as long as you're in business.

STEADY AS SHE GOES

The other reason we set a level you're comfortable with, is because it will be consistent. It's a baseline. Always at least this, but no lower.

If you want to spike your advertising for a big event, that's great, but your comfort level is the minimum level you spend during both good and bad months. Part of the comfort level is being able to write that check even when you're having an awful month. 

That awful month will happen.

You'll be tempted to hold on to the advertising budget, especially if it's larger than you would like. You'll find next month is hard to get back on that spending train. Studies have shown repeatedly that business who advertise through down times consistently exit the down-turn with a much greater share of the market than before because all the competitors pulled back on advertising.

PROPORTIONAL RESPONSE

One of my favorite phrases from my kids' elementary school years was, "You get what you get and you don't throw a fit". When setting your budget, you have to understand that you'll receive whatever your level of advertising provides. If you're comfortable with $500 a month, you'll quickly discover what type of response that gets you. It probably won't be a lot, but it can start to ramp up over time. $2,000 will get you more, and $4,000 even more than that.

Now we've talked about setting a marketing calendar and budget. Later this week, we'll talk about where to spend your ad budget.

Thank you for reading. If you find this helpful, please pass it on.