A company's advertising budget varies depending on the size of the company and the product's stage of the marketing life cycle because newer products cost more to market. Budgeting for marketing costs is a difficult but necessary task. It's important to remember to include all marketing activities in the budget, not just advertising expenditures. Marketing includes a wide variety of costs such as market research, sales, promotions, public relations and event sponsorships. Marketers must determine the best way to reach their customers and how much it will cost to reach them.
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Traditional Marketing Budget
Conventional marketing wisdom places the expenditures at 10 per cent of the projected sales of the product. To project sales, marketers estimate the size of their potential customer bases (called target market) and then estimate how many target market members will buy the product. All this estimation makes the 10 per cent rule of thumb fairly unreliable. In addition, new companies and those entering a market need to spend 15 to 20 per cent of the total budget on marketing to let consumers know that the product and company exist.
Marketing budgets factor in a variety of costs. First, someone must be paid to create the marketing plan, this could be as intricate as creating a brand or it could entail a simple quarterly program. Someone must be paid to create promotional material such as radio, print, TV or Internet advertisements. Advertising space needs to be bought from the marketer's chosen media, for example newspaper pages or 30 second TV spots. Space from local media is frequently less expensive than space from national media.
Marketers need to know how much they spend to attract each customer. One way to figure this out is to ask each customer how they found out about the company or product. That way, each customer can be tracked back to whichever advertisement drew them to the product. Marketing costs can be cut down to focus on just the promotions that attract the highest number of customers. Return on Investment (ROI) is another way to use market tracking to determine budget forecasts.
Marketing on a Tight Budget
Spending 10 to 20 per cent on marketing may not be an option for entrepreneurs just staring out or for cashstrapped small businesses. These types of companies should research low-cost options such as reprinting, self-production of material and online advertising. Costs can also be cut by refraining from hiring outside creative talent and relying on in-house talent instead.
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