What Percentage of Gross Sales Is Put Towards Marketing in Small Businesses?
Low sales and competition are among the common reasons businesses fail, according to information posted on the U.S. Small Business Administration (SBA) website. Marketing and advertising can address these issues. While some people assume marketing and advertising are the same thing, they aren’t. While not the same thing, marketing includes advertising and how one advertises should be included in a business’ marketing strategy.
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Marketing & Advertising
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The purpose of marketing is to develop a company brand, and attract and keep a customer base. Advertising is a marketing tool. Painting your company logo on the front of your business’ building is marketing and not considered an advertising expense. When you pay to have the logo printed in the local newspaper, that's considered advertising. While considered advertising, is also falls under marketing; therefore, when developing your marketing budget, include expenses for advertising.
Avoiding Advertising
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When developing a marketing budget, some experts advise small businesses to avoid advertising. In Stim and Guerin’s “Running a Side Business: How to Create a Second Income,” they recommend employing broader marketing strategies to achieve your goals, instead of spending money for daily advertising.
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Where to Spend
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Deciding what percentage of gross sales to put toward marketing is just one factor. How you spend those dollars is more significant. When putting together a successful marketing campaign, the goal is to drive customers to the business, improve customer service, successfully brand the company, understand the market and the competition, and garner a positive public perception. It might be time, instead of money, that you spend to market your small business. For example, donating your time to a community event or charity under your business’ name might be included in your marketing strategy.
Percentage
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There is no standard percentage of what to spend on marketing, in relation to gross sales. A small business that has been in the community for a long time, and already established, requires a smaller marketing budget than a new business. The traditional premise, according to an article by Caron Beesley on the SBA website, suggests spending 3 to 5 percent of the projected gross revenue for start-up marketing. Beesley suggests that it has more to do with your goals, rather than the actual numbers. According to studies cited in Barbara Schenck’s “Small Business Marketing for Dummies,” companies might spend from 8 to 10 percent of revenues on marketing to the public, while businesses that market primarily to other businesses spend around 3.49 percent.
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