As a marketer, I frequently have the same conversation over and over again with different businesses. And it all pertains to spend. How much should I be spending? Isn’t that too much? We’ve never spent that much before, will it make a difference?
Now. It’s a recession. So the normal rules don’t always apply. It’s taking a LOT more effort to encourage customers to part with their cash so, arguably, your marketing budget will need to increase (not decrease) in times like this to cope with that additional influence required. There’s absolutely no point “hunkering down” to wait it out – your business will not survive (intact).
So I thought I’d lay everything out for you with the benefit of a formal marketing education and over 15 years of experience across well over a hundred different businesses, and then you can decide, yourself, if you are under-marketing your business (NB. In my experience, most businesses are…..).
At Strathclyde University we were always taught to measure marketing spend roughly as follows:
- New Business/Product Launch: 10-12% of Turnover
- Established Business Wanting to Grow: 8-10% of Turnover
- Established Business Not Wanting to Grow: 6-8% of Turnover
- Established Business Wanting to Contract: Less than 6% of Turnover
These figures are flexible to a degree of 1 or 2 percent, depending on the industry and age of the business, but as a rule of thumb it helps me judge whether a business is over or under funding it’s marketing activities. You’ll notice the final option suggests negative growth – or, in other words, decreasing turnover and/or decreased balance sheet value. Very few companies are in business to achieve that.
More recently, the firm Go-to-Market Strategies published an article suggesting that around 39% of companies spend a “less than adequate” amount on marketing with 30% of companies spending 3-5% of revenue on marketing and 45% spending over 6% (most of those between 6-10%).
These figures are wholly consistent with what I was taught more than a decade ago in the halls of Strathclyde’s Business School.
But yet, despite that, I keep coming across businesses who are spending a lot less than 2% per annum and who seem puzzled by the fact their business is not growing.
If you are placing yourself in that category, let me put it simply for you. At that level of marketing investment, it won’t. At best you are maintaining the status quo. At worst, you’re diminishing your return on investment.
Modern business owners seem to have forgotten that age old adage “You gotta Spend Money to Make Money” – it’s still true. You want to grow your business? Then you have to invest more in your marketing activities.
So here’s a ready reckoner for you all out there, here’s what you should be looking to invest in your marketing spend if you want your business to grow:
Turnover >£100,000: Marketing Spend: £6k – £10k
Turnover >£250,000: Marketing Spend: £15k – £25k
Turnover >£500,000: Marketing Spend: £30k – £50k
Turnover >£1million: Marketing Spend: £60k – £100k
Turnover >£2million: Marketing Spend: £120k – £200k
I suspect some of those figures might shock some of you. How much? I can hear you calling?? She’s having a laugh.
But this really is no laughing matter. And I’m deadly serious. 85% of businesses in the UK do not survive their first year. Of those that remain, 30% fail during the following two years. Last year, 24 Scottish business failed every week, wiping 1278 firms off our nation’s streets in just one year.
These statistics are not funny. And reasons for failure, while I’m sure are anecdotally diverse, are fundamentally because a firm has failed to attract enough customers to make it solvent, profitable and successful.
Obviously, every business is different. Profit margins are different. Service and product based businesses are completely different and their marketing plans and expenditure will take account of this, however the percentages will only differ by 1 or 2 percent at most.
So, before you march forward into another week of hard work, long hours and an infinite number of business challenges, ask yourself this: Am I under marketing my business, and what difference would it really make if I were to invest properly in my marketing? What difference would more customers make? What difference would increased cash flow make? How would more customers affect my bottom line? How would a higher turnover and profitability affect my balance sheet and the long term growth of my asset?
Recession? What recession?