Page 85 - Duct Tape Marketing

69Chapter 5: Goals, Objectives, Strategies, and Budgets

ߜ Viewing the allocation as an important business investment

ߜ Managing the program well

When a business cuts back on marketing, it puts itself on a dangerous down-
hill slide. Sure, you recoup some money at the time of the budget cut, but fol-
lowing that one-time savings, look at what happens. With less money for
marketing, you can fund fewer communication efforts. With fewer communi-
cations, sales decline. Declining sales reduce your overall revenues, which
means you have even less money to allocate for future marketing.

Think long and hard before trimming your marketing budget, because it’s the
one expense item designated specifically to attract and keep customers.

How much should you be spending?

It depends. Everyone wants a magic formula, but there isn’t one. Mature busi-
nesses in established markets with low growth goals can get away with low
marketing expenditures. Companies targeting high growth must spend far
more. A business getting sales primarily as a subcontractor can spend practi-
cally zero on marketing, but a business trying to win a broad cross-section of
retail customers must budget enough for media ads and promotions.

One industry survey finds that businesses that market primarily to other busi-
nesses spend an average of 3.49 percent of revenues on marketing. Other stud-
ies show that businesses that market to the public spend closer to 8 to 10
percent. There is no one answer. Consider the following budgeting methods:

ߜ The arbitrary method: Best-guess budgeting, based on intuition and
experience, often using the past year’s budget as a benchmark.

ߜ Competitive parity: This could be called “budgeting to keep up with the
Joneses.” The budget is based on how much your competitors are spend-
ing and how your business compares in terms of size and strength. In
other words, if your volume is even with that of a particular competitor,
then your budget should be at least even as well.

ߜ Goal-oriented budgeting: This is a “spend what’s necessary” approach.
It involves taking a serious look at what you expect your business to
accomplish and what level of marketing is necessary to accomplish the
task. It is based on a calculation of the costs involved to implement a
marketing program capable of achieving your business goals.

ߜ Percentage of sales budgeting: Call it “name the magic number.” Under
this model, a business forecasts next year’s sales and allocates a per-
centage of that to marketing. Though this is the most frequently cited