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A Guide to Marketing Costs

Marketing Costs

Marketing is often a difficult and deeply involved process for any sized business as it encompasses all sorts of different activities depending on what your business needs to achieve – this can be as simple as keeping your employees and other stakeholders informed of business developments, or as complex as developing strategy to introduce new products into completely new markets – so putting a definite price on marketing can be difficult.

The trickiest aspect that your business has to face is working out how much to invest and when and why.

Planning and strategy

The first and most important aspect of marketing is the planning stage.

You can do this internally, but for a fully objective audit – the ‘where are we now’ snapshot of your business – it is better to use an external marketer. From the audit it is easier to define your business’s objectives, leading to the development of a road map of activities, which will ultimately determine how much money you will need to spend.

It really cannot be overstated how valuable this initial step is. A good plan will give your marketing campaign a logical structure, with clear objectives helping you to maintain strategic focus and retain a handle on costs. A bad plan, or no plan at all, may leave your business heading down a slippery slope from which it is difficult and expensive to recover.

If you have experienced staff you may want to complete this internally, but the risk is that the audit and plan will be less objective and could be influenced by individuals’ agendas. For this reason you may wish to turn to a marketing agency, who can provide the experience, knowledge and ability to expose your areas of weakness, which is necessary to properly execute this stage.

Budgeting

There are a number of common methods that companies can use to help define a marketing budget:

Percentage of Sales

Often set as a percentage of total sales revenue. This can sometimes be as low as 2% for SMEs.

Defining a budget this way has the advantage of keeping it in line with sales, ensuring you never spend more than you make, on the basis that successful sales will lead to greater marketing, which will then in turn allow for more sales and bigger marketing spend.

However this can be limiting and in some cases scaling back marketing in line with sales on your key products can have a damaging effect on your market share. It can also make a new strategy such as developing and launching a new product incredibly difficult.

Percentage of Total Budget

This method allows for an overall larger budget but does lose the advantage of being instantly linked with sales. This will make it necessary to plan ahead but also to include enough flexibility in your plan to react to changes in the market that you won't be able to see as quickly as when your budget is linked to a single product’s performance.

Flat Rate

This method is simply to set a budget for the year. It may be useful if you are looking at high cost, one off events such as launches or trade shows which do not necessarily link directly to sales.

Competitors

Another tried and tested – but ultimately damaging – method is to look at what your competitors are spending, and do the same. This will potentially keep you in line with the market, but it assumes that your competitors have already got it right and that those choices are right for your business. Both of these can be dangerous assumptions to make in a rapidly moving business environment.

Budget to objectives

A more conservative approach would be to clearly define your objectives for the year, and work out financially what it will take to achieve them. It can be tricky for start-ups and SMEs with limited experience to define these costs with any great degree of accuracy and may lead to overspending if you simply do not have access to the necessary funds.

What to Budget for:

Marketing encompasses a whole range of disciplines, many of which cross over with other disciplines (another reason for outsourcing, as your other staff may mistakenly see your internal marketing team as attempting to steal away some of their responsibilities). All these marketing activities can be grouped within the 7Ps and it is for these that you will need to plan costs – an example of some of the things involved are:

  • Place
    Direct Sales?
    Mail Order?
    Retail?
  • Product
    New Product Development
    Technology
    Design and Branding
    Quality
    Value
  • Promotion
    Website design and development
    Advertising
    Competitions and gifts
    SEO
    Affiliates and intermediaries
  • Pricing
    Loss leader?
    Price skimming?
    Penetration?
  • People
    Employees
    Management
    Culture
    Customer service
  • Process
    How are you services consumed?
  • Physical Evidence
    Appearance
    Facilities
    Comfort
    Interface

Once the budget is set you can move on and get the marketing activities underway. Tracking spend closely will enable you to identify what activities are effective and what activities are a waste of money. Effectively managing this feedback loop is vital in order to make marketing work for you, showing you where costs are lowest for the greatest benefit.

A few simple ways to do this include:

Ask your customers

Simple and basic, but often one of the best and quickest methods to find out exactly what has brought a particular customer to your door.

Promotions and offers

Again a very clearly identifiable method, whether you are using an online code, voucher or free sample promotion, offers give a very tangible form of data and response in an area which can easily become vague and intangible.

Web analytics

The way we live and work in the modern age is defined by the internet. Your website, if you have one, can prove a valuable data collection tool, from letting you know how many visitors you have and how long they browse your site, to digging down into what sort of search terms people are using to find you.

Getting advice

Marketing agencies will often provide consultancy services as well as full marketing project management. If you are taking your initial steps as a business into dedicated marketing investment you may find it helpful to speak to a number of marketing firms in order to benefit from their experience and expertise in the field.

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