Every dollar your company spends is under more scrutiny than ever. Are you spending the right amount on marketing and advertising?
Of course, that’s a subjective question. Still, many firms really miss the mark when it comes to allocating the right amount of marketing dollars. Designing a profit-and-loss statement that designates an appropriate amount of marketing money can go a long way toward controlling costs.
Here are some general guidelines many successful companies utilize:
Advertising-to-sales ratio for your industry. Many public firms have a number for marketing spending in their financials. For companies similar to yours, figure out the percentage of overall revenue their marketing spending represents to help determine your number.
If you can’t find any comparable companies, a good figure to begin with for marketing is 5%. From there, it’s easy to tweak that figure based on factors such as market size, media costs, how fast you want to grow, etc.
Leverage margin or leverage volume? Simply put: Volume-driven businesses are tight with marketing money — partly because large revenues cause small additions to spike quickly and partly because of margin pressures from contending with other high volume businesses. Margin-driven companies usually spend more on marketing because they have breathing room in their margins to afford it and are usually working from a smaller revenue source. But if your company has both volume-driven and margin-driven traits, finding where you stand in terms of marketing is not so cut and dried.
