Marketing and advertising, though often spoken of interchangeably, are not the same thing. Marketing refers to strategic planning, presenting and selling a product or service. Advertising is the promotion of that product or service, according to the guidelines and needs of marketing. In accounting, marketing and advertising are often considered a cost of goods sold, while marketing is also sometimes considered an operational expense. How you account for these expenses depends on how they relate to the production of revenues, but it is important when you are trying to decide how much to spend on advertising.
Setting the marketing and advertising budget is a daunting challenge for many small-business owners because of the many ways to approach the task. Percentage of gross revenue is one of the more favored methods of budgeting because it allows your spending to fluctuate as your revenue does. In the real world, however, marketing and advertising budgets vary widely based on your industry, competition, profit margins and a host of other considerations.
Some marketing experts advise that start-up and small businesses usually allocate between 2 and 3 percent of revenue for marketing and advertising, and up to 20 percent if you're in a competitive industry. Still other marketing experts counsel a range between 1 percent and 10 percent, and even more depending on how long you've been in business, competitive activity and what you can afford. It's apparent from these differing opinions that the percentage of gross revenue for marketing and advertising depends mainly on whom you ask.
Marketing typically drives revenue rather than the reverse in most successful businesses. Moreover, marketing and advertising spending in most successful businesses is task- or project-oriented. Task-oriented marketing requires a marketing plan, something most marketing experts strongly recommend. The percentage-of-gross-revenue calculation is a useful ballpark gauge of spending parameters. But, you need to be flexible depending on the requirements of your marketing plan.
-George Boykin/Victoria Duff- Demand Media
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