Major Minor Marketing: how to determine your marketing budget
In today’s ever evolving business landscape, many things are changing how businesses secure new revenue and build a solid business – but at the end of the day the most important factor is still marketing. Oddly, marketing is being ignored more today by start-ups and new businesses than any other business aspect. A recent CB Insights study showed the greatest factors for why start-ups fail are all tied to marketing.
One major factor is that most start-ups do not understand the true scope and impact of marketing. Many simply view marketing as an activity to be conducted after the product or service is finalized and ready. When pushed, most start-ups will say their marketing will simply consist of Facebook ads and some social media posts. This classically falls into the “Build it and (t)he(y) will come” strategy, which eventually leads to either a pivot and significant loss of investment or an inability to attract a large enough customer base – both paths leading to business failure.
Marketing is a foundational business strategy that starts with determining the market need (does it really exist), size and proper pricing models. These aspects must be reviewed and researched before a company can move into the next step of building brand awareness – the single most important facet to generating sales.
While brand awareness is so important to building a successful company, many companies and start-ups struggle with determining how much to spend. The growing idea of bootstrapping has led many to think that the brand building side marketing isn’t that important or difficult because they really believe in their product, which is important but few in the actual market will share that passion – especially if they never learn of the company.
So how should a company determine how much to allocate for this level of marketing each year?
It’s a bit easier for companies with existing sales. Traditionally companies will allocate 10% of overall yearly net revenue to maintain existing brand awareness and sales. As a rule of thumb B2B companies will allocate an additional 5-8% of overall yearly net revenue for each new product or service launched in a specific year, while B2C companies will double or triple that amount depending upon the competitive landscape — retail, pharmaceuticals and CPG products can have marketing budgets upwards of 50% of total yearly revenue.
This style of strategic marketing activity snowballs over time, delivering exponentially increasing return the longer the tactics are underway in a coordinated, diversified fashion that covers the right audiences with the right messages.
For newer companies and start-ups that are working from seed funding and just getting to their first sales cycle or the first product launch, the process can be more difficult. It’s also easy to push all the initial funding to development and wait for sales to build a marketing budget, but this can also drastically slow the sales cycle and allow competition to claim needed market share.
The best method for strategically determining your needed marketing budget for early brand awareness building is to look directly back at your business plan or funding deck. At some point the founders forecasted a specific amount of sales. The biggest question now becomes, “How much revenue would we secure this year IF everyone in my target sales demographic knew my company and product or service?” (This number is usually the second or third year in a start-up business plan.) Obviously that number will be far more than your existing projections – this is the opportunity cost of not doing a strategic, ongoing brand building campaign. In this case you cannot solve the opportunity cost problem with a small budget. This is the basis of the Major Minor Marketing Solution.
If you have a major problem, you need a major fix. You wouldn’t try to solve a crumbling foundation on a $5M home with a contractor charging $5K. Likewise, you wouldn’t buy a $5M computer to send email. Major problems require major fixes, and minor problems require minor fixes.
Remember that big question? This is where you base your budget. If you COULD be selling $1M more in product/service each year if everyone knew your company, then 10% is a reasonable amount for marketing. Most everyone would invest $100K to make a million more in revenue. Now the good news – good, boutique marketing firms today can provide that level of service for as low as 5% — take advantage and grow.
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