How does a business determine how much to devote to its marketing budget?

Unfortunately, there's no magic number or formula. The most common answer is, "It depends."

Among the variables, of course, are your industry and strategy, as well as your intended delivery vehicles. Read on for valuable advice from our readers on setting a workable budget.

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Sensing the magic marketing budget number

I'm responsible for sales and marketing in a small company. I have some ideas about what would improve the way the company markets its products and have researched what those ideas would cost to implement. How can I determine what makes a reasonable budget? Is there a magic formula that says, "If you historically have made $X in sales, and want to increase that by $Y, don't spend any more than $Z on marketing"?

—Carla, Director of Sales and Marketing

Readers provide good guidelines for reaching the magic budget number. One reader says to keep in mind that a business spends more on its initial marketing and then establishes its percentage based on experience and industry.

Another reader provides a general rule of thumb and a couple of factors that could change the rule:

The rule of thumb, at least in India, is that the budget for advertising and promotion to generate sales revenue should ideally be around five percent of sales. So if you want to generate sales of $100, a good marketer should be able to spend no more than $5 to generate that.

It also depends on the stage of your product's life cycle. When launching a new product or service, you definitely need to spend more on marketing, which could be as high as 20 percent of the sales and revenue target. Also, as the media costs keep getting higher year after year, this formula needs to evolve, but then again the use of clever and alternate media vehicles instead of TV and print are the keys for justifying advertising spending.

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ABOUT THE AUTHOR

Hank Stroll (Hank@InternetVIZ.com) is publisher at InternetVIZ, a custom publisher of 24 B2B e-newsletters reaching 490,000 business executives.