Know-How Exchange : Strategy

What you are assuming really is that since you had success with no marketing-- you will get more success with an investment in marketing. hopefully your assumption is correct.

As far as the #'s and % to marketing-- what your investors are looking for is payback and when the company will be profitable. So if your 30% returns and your company is profitable-- you can continue to invest. But if it isn't, then you will have to adjust.

The plan is for investors and they don't care what that number is-- just what it will return. 30% of rev to me, appears a big number. But then, I don't know what your other numbers are-- costs, overhead, people, etc. A % of profit invested back into marketing would be more in line with what investors like to see. But with a start up, that # may be too low.

Short of it-- its dangerous to assume the marketing #'s as a % of anything without knowing all the numbers. Every line item effects the company as a whole, especially in this start up phase.

There are too many unknowns to determine, with the information you've given us, whether 30% is too low, too high, or about right. If 30% delivers your sales and profit objectives, then it's probably about right. If it doesn't, then it's either too high or too low.

You don't set a marketing budget by taking some percentage of projected sales. You do it by determining what spending level it will take to generate the sales and profit numbers you need. When you have that number you can divide it by your sales figure to get a percentage, but then it's just a result, not a driver.

Create a base level marketing plan that can generate the awareness and interest you need, and see what it will cost to execute that plan. That's where you need to start.

As far as I now, it was Lord Leverhulme, founder of the famous and successful Lever Brothers firm, who first coined the oft-repeated quotation: ‘Half the money we spend on advertising is wasted. The only problem is, we don’t know which half!’

In the usual business context, there are six methods to determine your marketing spend:

• % of last year’s turnover method
• % of next year’s forecast sales method
• % of profit method
• Keeping up with the competition method
• The ‘task’ method
• The bosses’ whims’ method.

Of these methods, only the task method is right. The task method of determining your marketing spend means firstly that you must establish what you want to achieve in explicit terms, and then costing it out to arrive at an affordable budget figure. If the initial marketing strategy results in a spend figure that is too high, then at least you have a basis for objective pruning. Without this objectivity, there is a great likelihood that some of the money spent on promotion and advertising will actually add nothing positive to the goals of winning sales.

Consequently, the most difficult decision that you face in determining a marketing strategy and associated spend is to choose the most suitable approach to marketing your business. Within the task method, there are six factors involved:

• What is actually wanted to happen?
• How much is that worth?
• How much can the business afford?
• What message will make it happen?
• What media should be used?
• How will the results be checked or verified?

The reality here is that a marketing spend is of no use if it does not lead to sales. To lead to sales, the marketing must promote the businesses’ attributes from the clients’ point of view. You cannot therefore base your actions on ‘I am currently assuming 30% of investment for marketing activities. Every year, I am again assuming 30% of revenue for marketing expenses.’ As my fellow responders above have indicated, there are too many unknown, untested variables to be specific.

这些变量是价格之一。你可能没有considered your prices in the context of your posted question. But it has a dominant influence. Pricing policy is a sensitive, difficult and contentious issue for any business. History and experience show that the most frequent mistake made in the establishment of a new business is to pitch the initial prices too low. This is an understandably natural reaction to two important issues for a new business:

• the failure to take into account all the costs associated with providing the services being marketed, and
•屈服于削弱任何真正的诱惑or perceived competition to quickly establish a market position.

These errors usually lead to fatal consequences, although I note that your recent sales history seems to indicate that your pricing policy is OK.

Extensive research undertaken some years ago in the United Kingdom sought to find out what was the single most important factor leading to business success. Ninety percent (90%) of the 240 large companies that participated in the project over a period of nearly four years overwhelming reported that the single most important factor leading to business success was the profit margin on sales. Although this research was conducted some years ago, there is no evidence available to suggest that the research results are not still valid. If profit margin on sales is the single most important factor leading to business success, then clearly, pricing is at the very heart of business success. Consequently, you cannot set your prices without first determining your optimum profit margin on sales for each of your products or services.

Why am I raising this in the context of your question? Simply this: as mgoodman and CaroBlaha have already said, there are too many unknowns in this scenario to be specific in response to your question. I have just tried to highlight one of the more important of these variables to illustrate the difficulty of responding to your question in a very positive way. You will have to look at your overall business strategy in much more detail if you are intending to submit an investment proposal to investors. Investors can be expected to dig deeply into your proposal. I would be surprised if any investor would accept at face value, that 30% of the investment funds should be committed to a marketing spend.

Regards,

Chiron34

Dear kalyani,

THIRTY PERCENT?

As in 30 percent of your total operating budget?

Don't know what you do exactly, but that seems to me
to be high. But, as pointed out above, if it works for you and it's what you're budgeting for and projecting toward, knock yourself out.

But here's another way of looking at things:

The Joie de Vivre hotel group here in the USA is a
$250 million dollar per year operation.

If memory serves me correctly, they spend about
$50K on print advertising and a little more on general marketing, but mostly, their marketing budget is under
1 percent of total operating.

Here's why:

They figure that if their marketing budget is more than
2 percent of their total operation they believe that there's something wrong with their business model.

READ THAT AGAIN.

Their philosophy is one of their marketing working harder through the services they offer, so that every customer becomes an advocate and an ambassador for Joie de Vivre—so, in effect, every customer becomes a walking, talking marketing statement ABOUT Joie de Vivre and its great service.

How might this example DECREASE your costs?

How might it MAXIMIZE your client expectation (and with it, their loyalty to you) because you read people's minds and provided for things those clients didn't even know they needed until you offered them?

And how might this example increase YOUR profit potential?

I hope this helps.

Gary Bloomer
The Direct Response Marketing Guy™
Wilmington, DE, USA