The Ten Percent Rule: an Answer to the Marketing Budget Mystery

By Celia Rocks

It’s time to create your 2006 budget and, as usual, you’re stumped about how much to allot to marketing. Should you spend what you spent last year? Increase the amount (because you did or didn’t get the results you wanted last year)? Decrease it (again, because you did or didn’t get the results you wanted last year)? Throw a dart at a dartboard? No one, it seems, can give you a straight answer. Surely, it can’t be that difficult to budget for marketing . . . can it?

No. The simple formula that most companies should follow when budgeting their marketing dollars is:

• If you market consistently, allot 10 percent of your gross revenue for marketing.

• If you haven’t marketed at all lately, allot 12 percent.

• If you’re very successful and don’t need any more business, take it down to, say, 8 percent—and spend most of that on marketing to current customers.

People tend to make the issue of marketing a lot more complicated than it has to be. But I’ve worked with plenty of companies over the years, and I’ve found through trial and error that 10 percent of gross revenue is about right. Budget less and you’re not getting your name out to new customers, budget too much more and you may not get a profitable return. Ten percent seems to be the magic number.

The earmarked 10 percent can be applied to anything from publicity to relationship building to sales training. It all depends on your strengths, your market, and the nature of your message.

Alex Hiam, founder of INSIGHTS for Marketing (and author of Marketing for Dummies and The Portable MBA in Marketing), agrees with the 10 percent rule and warns companies to think long and hard before committing their marketing dollars.

“You can’t be too careful,” he says. “For most companies money is tight, and there are plenty of so-called marketing experts out there pushing canned, unfocused, or poorly executed ideas. Test all new marketing ideas and methods on a small scale, with less than 1 percent of your gross revenues, and scale them up only when you find a formula that works.

“It’s not the numbers that differentiate a great marketing plan, by the way,” Hiam adds. “It’s the honesty and strength of the core message. Do you have something important to offer, and do you explain it well, to the right people, and make that message easy for them to find? A 15 percent improvement in the honesty and strength of your message is a better investment by far than a 50 percent increase in the budget for a lackluster program. Don’t be seduced by the idea that more spending guarantees better results.”

Here’s one final piece of advice:

Be sure you know who you are and who your customer is before you start telling the world. It’s shocking how many companies don’t know who they really are. They can spend and spend on marketing, yet see very little ROI. Take the time to do some self-exploration and every dollar of that 10 percent will work overtime for you.

For more information, visit www.brilliancemarketing.com and www.insightsformarketing.com.