As I determine my marketing budget, I am curious as to what percentage of ones budget you feel a budding design business should dedicate to marketing and what return should one expect for the first year or so on that percentage.
Typically, when you’re doing things according to a textbook, you allocate a percentage of estimated sales to sales/marketing. It can range from 5-25%, depending on the nature of the industry and what phase the company is in (startup, growth, etc.). Realistically, if you’re writing a business plan for yourself, a blueprint to follow to grow your company, it’s practically meaningless to use percentages unless your projected revenues are so large (millions) that a percentage based estimate would provide you with an ample budget.
You need to really know the costs. You need to have some idea of what it will take to launch your line and get placement in the projected number of retail stores. You could find that it takes a tremendous amount of money to reach your goals in the startup phase.
The reality is you have to spend on marketing, and you probably will spend more than you anticipated. Gotta print line sheets, that’s a sales/marketing expense (and even in black and white, there still is usually a cost). Gotta travel to make sales calls, sales/marketing expense. Gotta pay commissions to reps, that usually falls under sales and marketing too. Photos, sales/marketing, samples, sales/marketing. Yes, most people think that sales samples are a production expense, well technically speaking your fit samples are but your sales samples are a sales/marketing expense.
So what you really have to do is figure out how much you need to sell. Then you figure out, using an average based on your past orders, how many stores will need to buy from you to meet those sales projections. Say you need to sell 200 pcs of your spring collection and on average, each store orders 5 pieces. Well then, you need at least 40 accounts placing orders. How are you going to get 40 accounts to place orders? What are you going to do and how much is it going to cost? This is how you get your numbers.
You have to do that, as a small business, otherwise your projections, estimates and percentages are meaningless because you don’t actually know how you’re going to get there and what it’s going to cost.
You may find that trade shows are not the most cost effective way to reach your prospective buyers. You may be able to rabble up those accounts hitting the road and getting a commissioned sales rep. You may find other, creative and less expensive methods of reaching those retailers.
It’s hard to give a blanket percentage because some product lines will take more money to launch than others. Some product lines are no brainers, Some product lines are innovative and pioneers and will make it through exposure and word of mouth; some are “me three” products in a crowded market. Having been through the business plan thing a fair number of times, I find that the projections and estimates are most helpful when they are based on strategy and planning, and you can actually use them to run your business because the data is qualified, versus getting textbook scenarios and textbook percentages.