Traverse City Record-Eagle

Business

January 27, 2013

Tanya Berg: Marketing shouldn't be an afterthought for new businesses

How much should a small business invest in marketing?

While capital may be limited, your marketing budget shouldn't be determined by what is left over after all other business expenses are covered.

A common mistake, especially for start-up businesses, is assuming you can wait until your business is profitable before investing in marketing.

It's the proverbial chicken or egg debate.

If your business isn't generating sufficient revenue, how can you spend money on marketing?

However, if you aren't generating sales, one reason may be because you aren't effectively marketing your business.

So what's a small business owner to do?

First, be sure marketing is included as a key component in your business plan right from the start.

This is particularly important for new businesses. Developing brand support materials such as signage, collateral, business cards, a website, and promoting the launch of a new business are important start-up expenses that should be included in your budget and financial projections.

There are a number of ways to establish your marketing budget.

One simple method is to use a percentage of your projected annual gross revenue as a starting point for estimating your marketing budget.

The percentage can vary widely depending on factors such as the industry, size and type of business, size of geographic market and whether a business is well-established or in the start-up mode.

Typically the larger the business, the smaller the percentage allocation will be for marketing.

For example, while Walmart spends over $2 billion per year on marketing, that represents less than 1 percent of gross annual sales.

As a general rule of thumb, small businesses with less than $5 million in annual sales should allocate between 8 and 10 percent of revenue to marketing.

If you are launching a new business, expanding or introducing a new product, you may need to allocate even more. It's not uncommon to invest 15 to 20 percent in those situations.

It can be even more challenging to determine how to spend your marketing budget effectively.

Create a marketing plan that includes specific activities and measure their effectiveness.

You can then refine your marketing plan and budget to maximize your success and return on investment.

For more information or assistance with marketing, starting and growing your small business, contact Traverse City SCORE at 947-5075 or toll-free at 888-796-4913.

Visit www.UpNorthScore.com to schedule a free and confidential appointment with a SCORE mentor.

Tanya Berg is a volunteer SCORE mentor and the owner of Smartmark Consulting, a Traverse City-based marketing consulting firm.

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