How Much You Can Afford to Spend in Advertising?

This question is always a very tough one. A great place to start when you are setting a marketing budget is in examining your business goals.  If you seek to become the Big Dog Company – that is, if your driving aspiration is to elevate your business establishment into an industry-leadership spot and blow your competition away – It means you have to spend a lot more cash than if you’re content with just getting by. I make the assumption that you need to have more success than just getting by – you would not be advertising at all if you did not want your business to prosper and grow. But to achieve the kind of success and profit you are after, you need to make an ad budget. 

Over half of new companies fail within their first a couple of years. This gloomy statistic is probably caused by some factors, but a lack of cash (working capital) is usually the dominant factor. Most companies start out with great desires and limited capital, and it is the hand-to-mouth reality of start-up businesses that kills most of them. When fresh entrepreneurs open up new businesses, they frequently forget to set aside enough fund for an effective ad budget to get their brand and name out there. You can devise a better mousetrap, but not having adequate working capital to afford to tell the whole world about your product is like trying to tow a leaky boat with a rope.

A company may spend as much as ten percent of gross revenue on marketing and advertising. For many people, this percentage may seem too high, but some businesses must invest that amount for advertising purposes in order to compete in highly saturated market. On the other hand, some businesses spend two percent or even less on advertising and in the case of very small enterprises; some don’t even have that much on a sustained basis. Many small businesses spend between two and seven percent of their gross revenue on advertising, though some spend as much as ten percent.

Percent of gross revenue is a very handy budgeting tool, but it can leave a start-up business owner with inadequate exposure. Start-up business owners often must allocate a percentage of projected gross revenue and overspending in the introduction of their business to develop the business operation to a profitable level.

You may use the above figures as basic guidelines to help you allocate your own advertising budget, but do remember that each business is unique and different. What works for a company may not work well for another. When in doubt, abide this simple rule: Spend as much cash on advertising as it takes to create and sustain a lasting impact in the marketplace, but don’t invest so much that you put your business into financial jeopardy.  Begin the process of allocating a budget by trying to find some answers to these following questions:

• How large is your business?
• How much annual income does your business generate? 
• What do you seek to accomplish with your advertising efforts, and how much will that cost?
• What are your competition expenses?

If you are in a highly competitive market, such as clothing boutiques, cell phones, car sales and restaurants, you have to step up to the plate with really serious bucks in order to hit numerous homeruns in the market. Your competitor is spending their brains out, and you need to do the same. But then, if your company enjoys a niche status in the market, if you provide service or merchandise that people cannot get elsewhere, certainly you can get away with much lower advertising budget.

If your budget allocation is too limited to make a lasting impact in the market on a weekly basis pr monthly, stash your money until you are having some big and special sale or event and then assault the media vigorously. In advertising world, you are better off having a loud voice once in a while than a weak voice each day.

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