There are various ways in which you can allocate your marketing budget funds. The type of business, the size, and the stage (startup phase, growth phase, etc), and resources will be the major factors in determining which method is best for your business.

There are generally four main methods of allocating funds within your marketing budget: a fixed amount, spend according to your objectives, percentage of sales, and matching your competitors.

• The Dollar Approach

We will start with describing what is called the dollar approach. This basically means that a fixed amount of money is set for marketing. Smaller companies will usually start out using this approach since funds are limited, they will have a cap on what they can afford. I encourage you to read the Setting Your Startup Budget.

Since there are no past records of sales and marketing expenditures in the first year of business, a dollar amount needs to be chosen that fits within the overall budget.

• Business Marketing Plan Objectives

In the case where funds are not a limiting factor, the best way to allocate marketing dollars is to follow the objectives of the marketing plan. This means performing all the marketing methods specified in the plan to the full extent that marketing research has determined that the ROI will be positive.

This is perhaps the complete opposite of the dollar approach. Where a cap is placed in the first option, there is theoretically no limit placed on expenditures in this method.

This approach however needs to have its marketing well planned out and researched before it can be adopted for obvious reasons. Spending large amounts of money on untested advertising can be disastrous.

Another factor to be considered with this approach is the ability of the company to deal with the influx of clients. If the business can be scaled up easily, then it makes sense to acquire customers as quickly as possible. If however the company is constrained by how many customers it can serve at one time, then it makes more sense to grow the business more organically and not use as much resources on its marketing efforts.

• Percentage of Sales

Many companies determine their marketing budget by using a percentage of sales from the previous year or quarter. This is one of the most popular methods as it is easily calculated. It is used by companies that are fairly stable and can predict with accuracy what their cash flows will be.

There is no right percentage, however most businesses will have a percentage approximate to 10% of the annual budget. Of course, this can vary depending on business sector, special events, etc.

Although financially speaking it is quite easy to determine and work with, a percentage of sales is not necessarily the best approach for your company all the time. For example, if a company has room to acquire new business, keeping a set percentage may be limiting that growth.

• Matching Competitors

The last method to help determine the marketing budget is to match what competitors are spending. Although you will probably never know an exact amount, it is possible to estimate an amount by keeping a close eye on all the advertising that is done by the competition.

By advertising in the same newspapers or magazines, or buying the amount same radio time, you can ensure that you are equally represented in the market.

Using this method requires that your company be somewhat equal in size to the others that you are competing with. It would be foolish to try to match the marketing budget of a company three or ten times your size.

The major drawback to this method is that you are not initiating your marketing projects. Since you are basically copying the competition, there will be little innovation to separate you from your competitors.

Ultimately, choosing the best way to allocate funds to your marketing budget is not an easy choice. There are drawbacks to each method, but ultimately money needs to be spent on advertising and not thinking about how you will determine an amount would be a major disservice to your overall marketing plan.