“How much should I spend on marketing?” is a question many small business owners ask at some point. In the UK, like elsewhere, figuring out the right marketing budget can be a challenge. For many small businesses, allocating funds for marketing is not always straightforward. This guide outlines five common methods to help UK businesses determine their marketing budget for the year.
It’s important to remember that these are marketing budgets, not just advertising budgets. Marketing covers everything that raises awareness about your business, from advertising to brochures, events, sponsorships, and more.
1. The “No Idea At All” Method
Some businesses operate without any formal marketing budget. They might only advertise when sales dip, or when tempted by a limited-time offer from an advertising salesperson (“Buy now, and get 50% extra free!”). There’s usually a reason for these offers—perhaps because it’s a poor time to advertise and regular clients have held back, leaving the sales rep in need of business.
Many businesses are too busy during peak times to focus on advertising, and when they do, it’s often too late. If you only advertise when sales drop, you’re likely wasting money. It’s a reactive approach, typically resulting in advertising at the wrong time, targeting short-term sales that rarely materialise.
2. The “Spend What You Can Afford” Method
This approach involves spending whatever surplus cash is available on marketing. During good periods, businesses may invest more in advertising, while in leaner times, they cut back. The risk with this strategy is that if business slows and you reduce marketing spend, it can become a vicious cycle. Without adequate marketing, it becomes harder to attract new customers, worsening the situation.
3. The Percentage of Sales Method
This method is popular among small businesses. You set aside a fixed percentage of your annual sales for marketing. For example, if last year’s sales were £200,000, and you decide to allocate 5%, your marketing budget would be £10,000.
While this method provides a structured approach, it has its flaws. You may not actually need to spend the full amount to meet your sales targets. For instance, if £4,000 is enough to keep you fully booked, spending the additional £6,000 could be wasteful. On average, businesses spend 3–6% of sales on marketing, but the percentage will vary depending on your industry.
For example, typical UK marketing budgets as a percentage of sales might look like this:
- Restaurants and cafes: 5-7%
- Retail: 4-8%
- Professional services: 2-5%
- Tech companies: 6-10%
If you’re in retail, your marketing spend may be higher compared to a business focusing on B2B services, which might rely more on personal selling.
4. The “Copy the Competition” Method
This method involves mimicking what your competitors are doing. While it might seem logical, it carries obvious risks. What if your competitors are relying on the ineffective “No Idea At All” method? Just because a competitor spends large sums on advertising doesn’t mean it’s working for them.
Even large companies often spend on unsuccessful campaigns, as seen in some ineffective TV adverts. Copying competitors can be a poor strategy—focus instead on staying ahead by finding innovative ways to market your business.
5. The Objective and Task Method (Recommended)
This is the method I recommend. Start by setting specific goals for the year. For example, you may aim to attract 100 new customers or increase average customer spending by £100. Next, work out the marketing tasks needed to achieve these goals and estimate the costs.
Once you’ve outlined the objectives, tally up the costs for each marketing task. This total will be your marketing budget for the year. Some key points to keep in mind:
- Always keep a cash reserve: This allows you to take advantage of unexpected opportunities or respond to competitive actions. Flexibility is one of the biggest advantages of small businesses, so be prepared to adapt to market forces.
- Set specific targets: Clearly define your goals so you know when you’ve achieved them. Once you’ve met your objectives, you can decide whether to stop spending or invest further for more growth.
- Do a break-even analysis: For example, if you spend £1,000 on marketing to attract 50 new customers who each spend £50, you’ll generate £2,500 in sales. Ensure this covers your marketing spend and turns a profit.
- Stick with what works: If you know certain marketing strategies have been successful in the past, include them in your plan. Just be sure to measure their continued effectiveness.
- Retain existing customers: Part of your budget should be dedicated to retaining your current customer base and maintaining market share. Review these efforts regularly to ensure they remain effective.
Monitoring Your Results
Whatever method you choose, always track and evaluate your marketing efforts. Many small business owners fall into the trap of not measuring results, leaving them in the “No Idea” category. To make your marketing spend more efficient, refine and improve your strategies based on data.
Final Thoughts
Determining a marketing budget can be challenging, but with careful planning and monitoring, it can be one of your most valuable investments. Whether you’re a local café in London or a tech startup in Manchester, a well-thought-out marketing budget helps ensure long-term growth and sustainability for your business.
Looking for a Fulham accountant to help you manage your business finances? Reach out to our team today to get started – we’d love to help.
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Kind Regards,
The Team at London Accountants
