A:

As organizations grow and new entrants to the market appear, companies must continuously stay relevant in consumers' minds. To remain a player in the market in which a company operates, allocating capital to spend on a marketing campaign is a necessary and important aspect of strategic business planning. Not every business spends the same amount of funds to create and implement marketing initiatives, but the process is similar regardless of an organization's size, industry, audience or marketing message. The steps to develop a budget for marketing include determining the growth phase of the company or product, understanding company-specific objectives, reviewing competitor data and knowing which marketing channels to use.

Company or Product Age

Marketing budgets range from 1-10% of revenue from sales in most instances, but the age of the company or product life cycle plays an integral role in how much funding is allocated to marketing. For instance, a company in its early stages with a product that's unfamiliar to most consumers may need to spend more in the first two or three years in business to boost awareness. However, a company with an established brand and a loyal customer base may spend less on marketing each year.

Company Objectives

The intention of marketing campaigns differs between companies, and it is important to develop a marketing budget that aligns with specific company objectives. For a startup company, building brand awareness or breaking into a new market is a common objective, and marketing spending should be allocated at a level that matches these specific goals. Established companies may want to launch a new product or increase customer retention, but they do not have to be concerned with creating brand awareness. This lowers the total output necessary for marketing efforts. Company objectives such as creating a greater online presence are used in both new and established businesses, but they often differ in total reach, creating differences in allocated marketing dollars.

Competitor Budgets

Another factor to consider when developing a marketing budget is what competitors are spending to market to consumers. In most cases, industry averages for marketing budgets are clearly defined for both startups and established companies. A business operating in an industrial sector or one that focuses on business-to-business sales typically allocates 1% of revenue from sales for marketing purposes. However, businesses that offer products with a high profit margin, such as pharmaceutical companies, spend upwards of 20% on marketing to ensure new products are well-known among consumers. Industry averages are beneficial when establishing a marketing budget, but they should be used in conjunction with a company's specific objectives.

Intended Audience and Marketing Medium

To determine the amount of capital required to reach a certain consumer population, companies must first understand how these consumers connect with the marketplace. For instance, millennials spend more time on social media sites and purchase more products through e-commerce businesses than baby boomers do. Companies wishing to direct marketing messages to millennials may need to establish or grow their online presence through sites such as Facebook or Twitter. Print, radio or direct-mail media may create a greater response for a customer base comprising older-generation buyers. Each of these media has different costs that should factor into a marketing budget.

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