Setting a Marketing Budget
By Susan M. Jacksack, J.D.
Staff Writer, CCH Business Owner’s Toolkit

Spending on marketing support—promotion, advertising and public relations—varies widely, from less than 1 percent of net sales for industrial business-to-business operations to 10 percent or more for companies marketing consumer-packaged goods.

Consumer packaged goods companies may spend 50 percent of net sales for introductory marketing programs in the first year, subsequently lowering the percentage spent to a stable 8 to 10 percent within a few years. Retail stores that advertise and promote spend an average of 4 to 6 percent of net sales for marketing support.

Often, small businesses estimate their sales revenue, cost-of-goods, overhead and salaries, and then gross profit. Anything left is considered available funds for marketing support. That’s not such a good idea. A more rational approach for setting your marketing budget is to estimate what your direct competitors spend in marketing support and then try to at least match that amount.

If you are the new competitor in the marketplace, you will have to spend more aggressively to establish your market share objective. Here’s a sample case study demonstrating how one small business set its marketing budget.