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Which Comes First, the Budget or the Plan? (Preparing For 2008, Part 2)

The answer to that question depends entirely on who you ask. 

There are no hard and fast rules about how to set a budget and so for many businesses, the plan drives the budget. They create a wish list – kind of like the one your kids take to Santa – of all the things they want to do and then back into a budget. Somewhere along the line reality takes over and some items are cut or at least postponed.

For others a budget always comes first. I know my franchisee clients have a set % of sales they are encouraged to carve out for marketing. This makes budget-setting a little easier for them because they have a guideline but can also sometimes be a little painful when the % is greater than what makes them comfortable.

For those businesses without a mandate from on high, the % of sales question continues to puzzle them. I’m seen numbers run anywhere from 1-10% depending on whether yours is a product or service-based company, the size of the organization and the current phase of your business (startup, growth mode, etc.).

My current marketing spend runs about 1 ½ % of sales, slightly less than the 2-3% most service-based businesses should be allocating to stay in maintenance mode and much less than the 3-5% recommended for growth mode.

Whether you can afford – notice I used the one ‘afford’ – to invest at this level is entirely between you and your CPA. And whether or not you’ve got a figure in mind, you can return to forming the wish list… er… plan.

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