Cost of marketing

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Where the budget come from

Marketing Budget

You are new to an online business. You know how to create the FB page. You know how to run FB Ads. If you think all you need to do to gain the profit is only by focusing on running the paid ads, you better check your calculation on your budget.

Assume you spent $50 for one unit of your product. $50 includes the packaging, etc. You sell it at $80 which made $30 profit for each unit.

If above is the basic calculation we know, from where the budget for the paid Ads is coming? If you just proceed using your money to run the ads without thinking of this, you are actually not making money.

What goes in a marketing budget?

Before we discuss further, a quick sharing about what else counted in a marketing budget. Typically, the marketing budget covers costs for advertising, promotion and public relations. Each amount varies based on the size of the business, its annual sales and how much the competition is advertising.

Depending on the industry, marketing budgets can range from as low as 1% of sales to over 30%. New companies may spend as much as 50% of sales for introductory marketing programs in the first year. Smaller business may just try to match the spending of their direct competitors.

The overall marketing budget should include:
Print and broadcast advertising
Design and printing costs for all print materials, such as newsletters, brochures and press releases, direct mail costs
Public relations
Trade shows
Any other special events needed

Never include your marketing budget into your product pricing

Product Pricing

We've read some of the business owners posting on the facebook, saying something like:

Yupp, we mark up a huge gap between the overall cost and the product price because the marketing budget is also counted in it.

This is against the fundamental of calculating the cost. Keep in mind, marketing budget should not counted when you pricing your product, it must calculated from your sales.

Percentage of Sales

Although there are several ways to base the amount for the Marketing Budget other then the sales, for a small business, it is always the best practise to allocate a specified percentage of sales revenue. The average allocation usually ranges between 9-12% of the annual budget, while the smallest businesses may go as low as 2%.

If a business is launching a new product or service, advertising and publicity needs are greater, so the percentage will increase. The main advantage to using a percentage of sales is that :

The marketing budget will increase, or decrease, with the sales revenue of the company. The marketing budget will never spin out of control and deplete sales revenue.

There comes the most basic concepts of selling online

In the very early stage of your business, we believe you have allocate an amount of money to develop your brand. Yup, marketing budget is also included in it. Once your online business went live, you might like to spread it to the market, you might like to even pay some personal in Social Medias who have million followers, to review your product etc.

Well, this marketing budget is a one time budget, only available during your first cycle of your business. After some months, when it comes to the next cycle, you have no choice but to get your marketing budget base on your sales.

In other words, marketing budget only comes if you have a very good sales. If sales is not good, you have no choice but to reduce your marketing budget. There comes the most basic concept of selling online. Before you proceed with the paid ads, you must consider to build the brand. And to build the brand, creating a good content or in short, blogging is the most ideal way.

Focus on your organic reach before paid reach

Organic and Paid Reach

This is one of the reasons we are not advise you to run your online business only by Facebook Page, or Instagram or other social medias. You must first, understand the basic concept. We've explained the basic concept in this post. You, need to have a website, your very own online premise. Make sure you differentiate between the homepage and the blog. Start managing your content(blogging) regularly. This way you'll build the brand and the trust. Believe it or not, it will be easier to run paid ads and make the conversion after you done your part for the organic reach.

Do not jump straight away to the Paid Reach Solution. Never skip your focus on the Organic Reach.