Every business experiences trends of increasing and decreasing revenues. When new business slows and income begins to dip, many business owners react by cutting back on the item in their budget they think is most expendable: marketing.
The unfortunate reality is that this is almost definitely the wrong step to take. When you cut your marketing budget, you reduce your revenues as well.
Today’s business cannot survive through only word of mouth referrals. Your company needs to attract new clientele on an ongoing basis, not just in the weeks following a postcard blast or mass email. In addition, you need to engage and maintain the loyalty of your existing customers.
Consistent, effective marketing helps you achieve both ends.
One recent study examined the marketing budgets of several publicly-traded companies. The researchers found that businesses that were spending an average of 16.5% of revenue grew up to 15% annually, and those that spent an average of 22% grew 16% – 30% annually.
When your marketing budget increases, your revenue follows suit.
There are several factors that can influence how much your business should be spending on marketing.
- Are you a new startup company? You may need to invest more until you have established a client base.
- Is business established and you want to maintain growth? Compare your current rates of new customers to those lost annually to determine how your current budget is doing.
- Is business stagnant or decreasing? Consider investing an additional 5% or 10% above your current marketing budget, at least until the trend reverses.
- How competitive is your local market? Higher competition requires greater investment to grow business.