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Don't Overlook A Marketing Budget

Marketing an make or break your business. Budgets are the lifeblood of any business, big or small. As a matter of fact, the relevance and importance of an enterprise's budget is perhaps, only second to the business plan itself. In terms of a guideline, budgets can keep your business on course, and steer it much more efficiently along the path to profitability.

This is true for all aspects of the business, but it is certainly true for marketing. The wise entrepreneur invests time and care in setting his marketing budget, because it is in this area that he can easily lose sight of the big picture. In short, it is hard to put a price on creative strategy, and marketing is precisely about that. After all, marketing is a matter of determining demand, matching a product or service with customer needs, and promoting those attributes in the marketplace to produce sales. How does a businessman put a dollar value on that, when, clearly it goes beyond calculating costs and estimating revenues?

Entrepreneurs know that marketing is not one single initiative; rather it's an on-going process. A specific marketing plan outlining concrete goals is indispensable to a well-managed business; without it, financial budgets and profit plans are incomplete. Specific marketing problems are unique to each individual business, but common problems facing small businesses are a shortage of funds for adequate advertising and promotion and a lack of time for developing creative marketing strategies. The greatest difficulty, however, may be developing a creative and tightly focused overall marketing strategy that is adapted to the particular demands of the individual business.

But the costs of marketing are difficult to quantify. In fact, many businessmen, particularly those starting out, are tempted to forego a marketing budget and "make it up a long the way". Jonathan Tan, 33, who owns his own Internet cafe, owns up to this mistake. He skipped developing a marketing budget, mainly because he was so much more concerned with the operations and logistics of his fledgling business. "I knew, roughly, how much money I had after all the start-up costs were deducted. But since I wasn't sure exactly what kind of marketing strategy to take, I did not really consider a serious marketing budget." Although Tan's business is up and running, he admits he lost much in terms of time and money because he didn't have a proper marketing plan, let alone a budget. "Since I had nothing to go on, my strategy was, let's see how the first six months go, and then we'll take it from there."

While it is true that initial budgets are difficult to prepare without a previous record or guide, it is imperative that adequate money be set aside for marketing.

Since there are large variations in both needs and costs, there are no simple rules for determining what your marketing budget should be. A popular practice is allocating a small percentage of gross sales for the most recent year, roughly in the amount of two to three per cent.

But the circumstances of a new business sometimes demand as much as 10 percent of your expected gross sales. Another method used by small business owners is to analyse and estimate the competition's budget and either match or exceed it. A little more complex is to set objectives and develop tasks to accomplish them, giving each task a cost estimate. The sum total of the costs is your rough budget.

Some businesses take a look at their competitors in the market and try to determine what they are spending, and either try to match or exceed it. Entrepreneurs agree, however, that the information can be hard to come by. Says one businessman who sells youth oriented collectible products, "People don't give that information away for free. It's very confidential."

First Time Around

Perhaps the easiest budget method, and certainly the one most commonly used, particularly by small business, is "percentage of sales". Calculate your projected sales and set aside a percentage of the total figure for marketing expenses. An industry rule of thumb is that three percent of sales represents a good average figure for advertising and promotional costs alone. Higher percentage allowances generally produce greater results if the funds are wisely used.

Don't forget that the budget must also cover general administrative expenses, travel, supplies, postage, resource development training, sales force expenses, marketing research, subscriptions, and professional memberships, if these are applicable. Although the budget must be flexible enough to allow for miscellaneous expenditures, it is necessary to live as closely as possible within the confines of the predetermined amount.

Remember that a marketing budget may be prepared monthly or quarterly, depending on the individual business. Begin by planning a monthly budget. After a certain period, one year for example, it may become clear that a quarterly budget is more appropriate, for you so you will need to revise accordingly.

Year End Revision

Veteran businessmen agree that a marketing budget is only effective when implemented around annual business and development objectives. The figure may be increased or decreased each year depending on sales and changing needs. Moreover, developing a subsequent marketing plan is a far simpler process when you have your initial plan available as a gauge.

Good marketing requires research, commitment, and the ability to be flexible as the market changes. The written plan must be a constant business tool, not constructed then shelved until the next year. Use marketing to make things happen for your business, and bear in mind the marketing budget is useful to keep everyone on track over the course of the year.

Your Marketing Mix

Typical marketing expense categories are marketing communications, market research, promotions, advertising, events and public relations. You may decide that not all of these are applicable or relevant to your business. Many small to medium sized businesses do conduct market research only to determine target market, not as an ongoing marketing initiative. But note that in these days, market research on the consumer and his behavior is very useful, and can serve as solid information that is at the heart of strategic business decisions. The difficulty is that market research can be expensive. But more often than not, information from market research can have an intangible value that exceeds the cost of acquiring the data.

Generally, marketing budgets fall into a number of categories, depending on your business. For example, Rajesh Hardwani of PN Agencies (a supplier of ingredients to food manufacturers), says that he uses 15% of projected income on marketing. "Of this, 75% is spent on above-the-line marketing communications, including ads in trade and industrial magazines. The remaining 25% goes into below-the-line activities like data base management systems, direct mail, news-letters, email communications, developing marketing collateral and public relations activities, such as developing media campaigns, issuing press releases and media kits," he said.

An account servicing representative of a reputable ad agency recommended that a small business should allocate 65-85% of the entire marketing budget to advertising. However, many businessmen starting out have been known to cut corners in marketing-doing a lot of the marketing communications work "in-house." This can also pay off in the long run.

Advertising in one form or another, however you choose to do it, can be critical to the success of your business. Hardly any business, particularly a retail operation, can stay alive without it. Companies that don't advertise may have their sales and profits swallowed up by other companies that do advertise regularly. On the other hand, it is critical to choose the right type of advertising fit for your business. Finding the right medium or kind of communications isn't always easy. Should you use TV, radio, print or a combination to make the best use of your advertising dollars? This has to be considered, and the costs calculated on that basis.

Promotions are the tactics you plan to use to fulfill your marketing objectives. To the new or inexperienced marketer, the promotion plan might be mistaken as the entire marketing plan because it outlines where the majority of the marketing budget will be spent. It is, however, just one component of the marketing plan-there are additional strategy and planning components described in a marketing plan. Events also represent promotions for your business-for example the sponsorship of a seminar or conference.

While in-depth public relations as a marketing initiative is not always relevant to smaller businesses, the occasional media campaign can sometimes help you achieve your goals. And obtain positive coverage or exposure of your product or service. Even one spot-on media campaign, particularly at the stage of the launch, can catapult your business by enhancing your image and simultaneously attracting prospective customers.

Budgets are basic to business. But a successful marketing plan doesn't have to cost a fortune. Great businesses have been built without primetime placement, a celebrity sponsor or state-of-the-art promotions. Often, it's the personal touch that makes a difference. Smart resourceful marketing can lead to success, and it doesn't have to break your business' bank.

"This article was contributed by Christopher Lai, Director-Head of Business Development, Small Business Services, CSG, American Express International Inc."

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