What is the best way to decide how much to spend on marketing? It’s not an easy question! You’ll find a large range of varying advice from different sources.
The Small Business Association recommends spending 7-8% of your budget on marketing. Some marketing companies claim the rule of thumb is 2-5% of your budget. Meanwhile, what companies actually do spend can vary widely depending on industry, the age and phase of the company, and many other factors.
So how do you decide on a marketing budget that’s right for your company? Here are a few factors to consider.
Your Gross Revenue
Generally speaking, your marketing budget will be a percentage of your gross revenue. It’s tough to set that percentage if you don’t know what your gross revenue is, so make sure you have that number nailed down. If your earnings fluctuate from month to month, you may have to calculate what your company made over the course of a few months and take the average.
Once you have a good sense of that number, you can sit down and think about how much you can afford to allocate toward marketing.
The Phase of your Business
Most business advisors suggest that new businesses spend a larger percentage of what they earn on marketing to get off the ground, as you won’t have name recognition or an established customer base working in your favor yet. However, that’s frequently the opposite of what many small business owners do, as money is tightest during your first few years.
If you can manage to invest a higher percentage in marketing your first year (around 25-35% of your gross revenue), you have a higher chance of thriving in that first 365 days and beyond. Think of marketing as an investment in your success.
If you already have a track record, a solid customer base and some name recognition in your industry, you may be able to do more with a smaller marketing budget (8-10% on the low end).
How Tough is your Competition?
Insurance can be a highly competitive business. The good news is that the wholesale insurance business tends to be very specialized. Your customer base may be much smaller than it would be if you were selling, for example, auto insurance in the consumer marketplace – but you’ll have fewer competitors, as well.
Still, that doesn’t mean you don’t have to contend with competition. How many other wholesale brokers are representing the kind of insurance you specialize in, to the same audience of insurance agents you work with? Do they have more experience than you?
If you’re looking to break into a new specialization and your competition is fairly strong, it may benefit you to consider devoting a higher percentage of your budget toward promoting your business in that new area.
No matter where you are with your business, establishing a definite marketing budget can help you grow. Consider how much you make in gross revenue every month, whether your competition is strong, and the phase of business you’re in – and hopefully you’ll be able to set a percentage that’s both affordable for you and effective in achieving your goals.