How much do I spend for a marketing activity?

This is a common question that never has an exact answer. Since many business decisions are made on a benefit to cost analysis, this is even more challenging for marketing. It is hard, impossible or even expensive to measure many marketing benefits like increased awareness or customer loyalty. To accurately measure awareness for instance, there is a need to scientifically measure awareness at 2 different points of time (at least) using  a large enough sample statistical sample size- and to do that means possibly spending more than the marketing activity used to increase awareness.

There are 4 ways to decide on a marketing budget

1. Percent of sales
2. Industry/ competitor spending
3. Affordabilty
4. Objective and Task Method

Percent of Sales is the most common but definitely NOT the most appropriate. This never works when the business is newly established or is still in the rapid growth stage. Why? Because there is little or no sales to multiply the percentage on. 10% of zero sales is zero. But if the business is in its maturity stage, then typical marketing budgets are 3 to 5% of total sales. It can go as high as 10% of sales when there is a new product introduction or to defend market share from aggressive competitor activities.

Industry or competitor spending is relevant in determining whether what you plan to spend is enough to make an impact vs. your main competitor. If you plan to spend P 100,000 one time, but your competitor is spending P 5 million, then this will make sense only if your 100k is on another platform or mode of communication. If you are both spending the amount on print advertisting, then save your 100k for a targeted social media campaign instead. Marketing competitive has often been compared to warfare- so if the enemy has a large army and you only have a force of 300 soldiers, you dont meet them head on in an army battle, you use guerilla techniques and bring the battle to the air or water where the difference in strength may not be as huge.

Affordability method is a practical concern for many small and medium business enterprises and start-up. On one hand,  you don’t want to spend money on marketing if you have little resources to spare. Often that is the case and this explains why many SMEs have little or no marketing budget. But on the other hand, there is a cost to not investing/ spending on marketing. If you have a small grocery store, and you don’t spend anything to communicate to its target market and get below break even sales, then there is a hidden but larger cost that results. You pay your employees, rent, taxes, electricity and because of the penny saved on marketing, only 10 customers come in daily when you could have had 100 customers with a proper marketing communications campaign. I am definitely biased being a marketing professor, but no business can AFFORD not to spend on marketing.

The objective and task method is the only truly acceptable way to determine your marketing budget. Define your marketing objective and determine what is needed to achieve it (tasks). Underspending and not reaching the objective is unacceptable. First, be effective (reach the objective) and then if you have choices that are all effective, then be efficient (optimize your use of resources).

• For SMEs who cant afford a lot,  setting a modest objective is a good first step. For example, instead of aiming for 100 customers daily from the existing 10 customers, then perhaps a modest target is reaching 15 customers. The marketing budget could be based on the incremental profit from the incremental 5 customers daily. So if each customer buys an average of 7,000 and the business has an average profit margin of 30%, then the incremental profit due to an increase of 5 customers daily is P7,000 x 30% x 5 customers per day x 30 days a month = P 315,000 per month. That is also the lost margin opportunity if you don’t spend for marketing.
• Now, what if the objective for the above example requires P 1 million in total to ensure that it is achieved. Then, you can think of this situation in several ways (1) You will need to achieve the objective for 4 months to recover the marketing investment. Still a good decision if you ask me. (2) Don’t spend 1 million since 315,000 per month is not guaranteed. This is indeed a business call which company owners have to decide own regularly (3) Spend P400 k and then wait and see. This is a practical approach but the danger is that 400k might not be enough to produce an effect. Often, there is a minimum effort that is required to create an effect (think of rocket launches or latent heat of fusion).

Another marketing budget tip: marketing budgets does not need to cost real money. Creative ways to save include offsetting. Supposing you are an owner of a medical clinic and you need to create a marketing video to post on your facebook page. Perhaps you have a business friend who can do that easily for you. And instead of billing you P10,000 then perhaps you can offer 10 free clinic visits for him and his family for the next 18 months. If you are a services provider like a hotel, then it can be offering free hotel stays during non-peak periods in exchange for tarpaulin printing. During non-peak days, your hotel has excess capacity that wont cost you anything to just give out in exchange for marketing products or services that you need.  

Let’s talk Digital for STRAMA

The pandemic has permanently changed the landscape for reaching our target customers. Some customers have permanently shifted their mind, heart and wallet to digital purchases.

This blogpost was made as a response to possible questions on digital marketing campaign for strama? – generally a budget of 20,000 up to 200,000 should be a good start as an annual budget if the company can afford it and if the incremental profit margin can repay the investment in 2 years or less. That is the amount you might want to consider to spend for the actual ads on FB, instagram. Might be worth it to also engage a digital marketing experts like Pam Astillero (her consultancy fee is not included in the above number) or Jonathan Joson (Both have shared their expertise in VCoach Digital Marketing class and blogposts have been made to share this.

Based on my own experience, a good digital consultant would be open to a project fee of 30k to 50k depending on the extent of work.

Finally, dont be locked in to a long term (ie. 1 year) program from a digital agency. Go for a 2 or 3 month project basis and see the results. It would not be unusual for a digital agency to propose a 100k a month fee for a contract of 1 year. And assign 1 trusted member of your team to work closely with the digital agency so there is transfer of technology and know how so you can DIY some of it afterwards. DIY Do it Yourself or the everfamous TATUYS Try and Try Until You Succeed

At the minimum, your digital marketing portion of strama should include: 1 Facebook page 2 Instagram 3 Messenger 4 Website 5 YouTube channel 6 Microsites for specific campaigns 7 Email marketing 8 Mobile SMS Marketing