Overwhelming? Perhaps.
Absolutely Necessary? Yes!
The question of how much money to spend on media
& marketing is one that is very subjective and always dependent on a number
of factors relevant to a particular business and its specific needs and
goals.
Easier said than done, in fact.
“Determining a media budget is one of the toughest
concepts many of our clients try to tackle,” said Stuart Nottingham, Director
of Technical Services of Management Applications Inc., of Raleigh, N.C., which
has been providing companies in all industries with ERP solutions and other
consultative network and business services for more than 20 years. “Some marketing initiatives just require your
time, like networking and asking for referrals, while many require a financial
investment. It's a recipe that mixes
differently according to your resources and needs.”
Nottingham notes that from online marketing and
print ads, to direct mail and broadcast media (radio/television spots), it's an
obvious fact that you have to spend money to make money.
Thus, it's best to first determine a general
budget range to start with. While many
clients are quick to ask “how much” they should spend, Nottingham notes
beginning with a range saves time in eliminating media options that don’t make
sense. Then more time can be spent
planning the very best way to allocate the media budget.
There are two general ways to go about determining
your media budget, according to Nottingham
The first way to figure your media budget is as a
percentage of projected annual revenues.
With this, having access to annual national media ratio reports to help
determine how much to spend is paramount.
A real-life example is a media budget for a medical
practice. In examining the ratios, the
percentage range for most medical practices is 4-13% of projected annual
revenue. And in 2011, physicians who
marketed their services primarily through referrals from other physicians
tended to spend from 4-5%, while physicians who marketed directly to patients
spent between 8-10%, because they spent more on media buys including broadcast,
print (newspaper and magazines) and online pay-per-click campaigns.
A second good way to determine a media budget is
to base it on Return On Investment, or ROI.
Generally, it makes sense to figure somewhere
between a 3:1 ROI (earn $3 for every $1 spent), and a 10:1 ROI (earn $10 for
every $1 spent) from media.
Larger, more established brands and consumer
brands can expect to get a higher return, while smaller, less established
brands, B2B service businesses and companies that are re-branding will
experience a lower return. This is a
good method to use if you want to gain significant growth over the course of a
year.
For example, if you want to grow your business by
$200,000 over the next year,and you are a small, but established company, you
could logically figure a 5:1 ROI, so your media budget should be $40,000.
Nottingham stresses that the sooner you carve out
a media budget, the sooner you can start to truly measure and understand the
impact of the spend to your bottom line results.
And ALWAYS make sure to review your budget on an
annual basis and adjust the numbers as your business grows or your media mix
changes.
