Setting a Marketing Budget

Promotion, advertising, and PR spending (that is, "marketing support") ranges from less than one 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 percent to 10 percent within a few years. Retail stores that advertise and promote spend four percent to six percent of net sales for marketing support, on average.

Small businesses often estimate their sales revenue, cost-of-goods, overhead, and salaries, and estimated gross profit. Anything left is considered available funds for marketing support. A more rational approach is to estimate what your direct competitors spend in marketing support as a percentage of net sales and then try to at least match that amount.

A word about the bucks: Schoenfeld & Associates consultants of Lincolnwood, Illinois did a study outlining ad dollars as a percent of sales for various product categories. This may help to give you a ballpark idea of the "norm" in your field.

Advertising dollars as a percent of gross sales:

Grocery stores	1.3 percent
Apparel	2.9 percent
Soft drinks	2.9 percent
Lawn/garden	4.0 percent
Education	5.0 percent
Computers	5.1 percent
TV, radio, electronics	5.3 percent
Catalog, mail order	5.7 percent
Retail stores	5.8 percent
Investment advice	8.6 percent
Cosmetics	10.4 percent
Confections	10.6 percent
Memberships	11.0 percent
Toys	14.2 percent
Cleaning supplies	14.5 percent

If you are the new competitor in the marketplace, you will have to spend more aggressively to establish your market share objective. New business may come from expanding total product sales by attracting new users, as well as converting current users to your business from the competition.

If you are an established business, your percentage of total expenditures for promotion, advertising, and PR should at least equal your market share, to maintain it. This rational approach assumes that all spending has equal effects on category buyers, which it may not.

See our case study illustrating how a small business decided upon its final promotion, advertising, and PR programs and budget.