Business owners do not have limitless funds, and starting entrepreneurs are even more cash-strapped. When it comes to advertising, they may have to seek out merchant funding just to have enough to get the word out, but how much should they allot for this business activity? If a business owner spends too much, they can deprive the rest of their company of need cash, but if they spend too little their competitors can end up stealing market share through advertising. There are no hard and fast rules, but you can get a good idea what you should be spending on advertising by taking a look at what others are doing in your industry.
Check Out Your Competitors
Check out the financial statements of public companies in your particular industry. There is a section for marketing expenditures. From that, you can determine the percentage of revenue they used to fund their marketing campaigns by doing a simple ratio of marketing expenses to total revenues. By looking at it as a percentage, you can then use the same percentage, but apply it to your total revenues.
Five Percent Rue
If that’s too much work and you’re just starting out, then stick to the 5 percent rule. It’s actually larger than what some discount retailers spend, but it’s a good starting point. If you find that it is creating more customer leads and bigger sales, then it might be worth it to increase the advertising campaign. If you find that it’s not effective or it’s too hard to fund at this rate, go lower. Eventually you will get to a percentage that is just right for your company by purely trial and error.
Service Businesses Need More Advertising
If you are not selling products, but services, the need for advertising increases. You will have to generate more new customers to keep the money coming in the doors when another client either no longer needs your services or leaves.