You’re looking to start a business. You know you’re going to have to attract customers and clients. But you’re wondering: how much should I spend on marketing?
In truth, it depends. There are a number of factors that will determine your marketing budget. We’ll cover those factors and more below.
How Much Should I Spend on Marketing? The Averages
Though marketing costs will be different for every business, generally speaking, it’s advised that small businesses spend 7 or 8% of their total revenues on marketing. Note, though, that this, in and of itself, is dependent on the business having profit margins of 10 to 12%.
Let’s say you bring in $500,000 in total revenues in your first year. Using this rule of thumb, you should be spending between $35,000 and $40,000 on marketing costs.
Factors That Affect Marketing Expenses
The figure reviewed above is a decent rule of thumb. But it’s far from the end-all-be-all. In truth, there are a number of factors that can affect your marketing expenses, including but not limited to:
The Age of Your Business
Generally speaking, you’re going to have to spend more on marketing at the start of your business than you will after your business is up and running. This is because you’re going to need to quickly build a brand and a client base as a means of generating revenue. If you don’t spend more than usual on your marketing, you risk going out of business.
Conversely, later on in your business’s life, you might be able to cut back on your marketing expenses. Why? Because your business will have a strong reputation and will be able to survive on word-of-mouth referrals.
You can’t spend money that you don’t have access to. And, while you might be able to take out loans, doing so could come with serious risk. So, in other words, your overall budget greatly affects your marketing budget.
Yes, marketing expenses are a necessity. You can’t get business without marketing yourself. But that doesn’t mean you should spend without restriction.
If you’re low on funding, take it slow in the beginning. Then, ramp up your expenses over time. Don’t try to meet an arbitrary quota when you don’t even have enough money to turn a profit.
The Actions of Your Competitors
The business world is dog-eat-dog. It puts you in direct competition with other businesses of your kind. If those businesses are spending much more on marketing than you are, you’re bound to fall behind.
As such, your advertising budget is greatly impacted by the actions of your competitors. You might have to spend more than you want to from time to time, just to keep your business toward the front of the pack. It might even become necessary to devote funds to an advertising agency.
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And there it is, an answer to the question of “how much should I spend on marketing?” As you can see, the answer varies based on a number of factors. So, assess your situation and plan accordingly.
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