The Marketing Plan: Marketing Budget

An advertising-marketing budget will vary widely from business to business.  Often, it is a function of sales objectives and time frame.  If a company is breaking into a new market, it might spend heavily to establish a beach-head, and then ease back as sales take hold.  This is all part of the marketing plan. The rate of spending will be monitored against sales response.  Businesses often run “campaigns” where, for a specific period, special offers are made, supported by an advertising campaign, aimed at generating new business.  Marketing and advertising can be a year long process or it can be a series of events, organized within a longer range marketing plan.  Note that the recurring term is, “plan”.  The big guys do it, your competitor is doing it and you should too.

Every campaign, event or ongoing sales and marketing effort has a cost associated with it. The thoughtful entrepreneur will analyze the various forms of carrying the message to find the most cost-effective medium for a given initiative.  In a large way, the nature of your company, the market and your customer base will make these choices for you.

The common way of assessing cost effectiveness of advertising media is “cost per thousand” or “CPM”. Simply put, “Cost” represents the total cost of an advertisement in a given medium, divided by the numerical size of the medium’s audience.  A $5,000 advertisement in a magazine with a readership of 100,000 yields a CPM of $50.  By contrast, Facebook ads, which are computed by number of “clicks” have a CPM of less than $10.  Obviously, social media platforms are a much better buy.  That doesn’t necessarily mean that it should be the best or the only way to advertise.  The decision should be based on your intimate knowledge of the market and your target audience.  If you advertise exclusively on social media, you are assuming that your target audience is a consumer of social media.

The small business owner is drawn to social media by its low cost, the ease of creating content and the infinite size of the audience.  Where your business is concerned, it may well be that social media is your most cost-effective advertising medium.  Your decision about how, when and how much to use social media should be made as part of an overall marketing plan that defines your target market, your profile customer and the best conduit to that customer that will  trigger a buying decision.

In the digital age, your marketing plans should include a website that informs the consumer about your products and services and perhaps a shopping portal.  Other media like Facebook or Instagram serve to drive traffic to your website.  Your marketing strategy should play to the strengths of these media, using them to influence, inform and elicit a buying response.

Try to avoid getting caught up in the Facebook versus Instagram debate.  Step back, build your overall marketing strategy with the market and your target audience in mind then deploy the resources at your disposal to yield the best bang for your marketing buck.  Plan first, set your targets, figure out how you will measure progress, and then choose your weapons.  Premeditated, targeted marketing will bring you the best results and will be the most efficient use of your valuable time and money.

How much should you spend on advertising?  Your total advertising spending must fit your overall operating budget.  Your sales will yield a certain gross profit.  Gross profit less expenses yields your net profit.  Increasing advertising expense beyond a certain point could produce a loss.  Your advertising budget is part of your overall marketing plan.  I turn, it becomes part of your forecast of operating expenses, after which you hope to make a profit.  In short, spend as much or as little as you can to meet your targets and make a profit.  Sound year-to-year planning and analytics will guide you to the right decisions in setting your marketing and advertising budget.

Dave Hands


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