What Is the Rule of Thumb for Budgeting and Marketing?

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The rule of thumb for a marketing budget will vary by industry.
The rule of thumb for a marketing budget will vary by industry. (Image: Jupiterimages/Photos.com/Getty Images)

Setting a marketing budget requires marketing spend analysis and an understanding of the industry and competitive landscape a company is in. MarketingProfs (marketingprofs.com) states a rule of thumb for setting a marketing budget is using 2 percent of last year's revenue for an existing company or 10 percent of projected revenue for a new company. However, factors like a growth in sales goals and an increase in cost from vendors must be considered when setting the budget.

Review

Review campaign costs from the previous year. Note any campaigns you will want to run again, and mark down the cost. Forecast future campaigns you will need to run for things such as product launches or industry events. Contact all the software vendors, contractors and media companies you will need to work with and ask for cost estimates. Last year’s estimates may now be out of date. DIY Marketers (diymarketers.com) states you should also educate yourself on any new tools or methods available and budget to include these if you have someone who can take the time to learn how to execute them.

Percentage

Use a percentage of revenue as the base for the marketing budget. MarketingProfs states existing companies should use 2 percent of last year’s revenue and new companies should budget 10 percent of projected revenue for the year. Existing companies that do not have brand recognition or that are launching new products should also budget 10 percent or more to fuel sales growth.

Goals

List marketing goals for the year such as an increase in leads per quarter or an increase in sales for the year. A lead is defined by Business Dictionary (businessdictionary.com) as a person who requests more information from a company after seeing an ad. To meet these goals, the budget must include an appropriate increase. If it is not possible to increase the budget by the necessary amount, review the planned campaigns and determine if any can be scaled down to include other marketing initiatives. For example, if the current budget includes creating five new commercials, cut it down to three new commercials and use the remaining money to buy magazine ads. This allows you to reach two different audiences using the same amount of money.

Flexibility

Set a marketing budget that is flexible. If you find out a competitor is launching a new product midyear, you will need to increase your marketing spend at this time to remain competitive. Additionally, if sales slump due to new players' entering the market, you will want to immediately run new campaigns to keep your audience interested. Ensure you have marketing dollars set aside for events that cannot be foreseen.

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