Track marketing ratios to fine-tune your budget

October 19, 2018 By    
Develop marketing ratios to help determine your marketing budget for the next year. Photo:

Develop marketing ratios to help determine your marketing budget for the next year. Photo:

Ensure your dollars spent align with your marketing priorities

At this time of the year, everything else probably seems more important than putting together a budget and marketing plan for next year.

You and your team are concentrating on a variety of work details to get ready for the winter season, and delivery demand is already starting to creep up.

The reality is, there is no better time to review what this year’s marketing efforts were, what they cost by category and their results. Your final quarter’s marketing efforts will be easy to project into the mix to be able to look at how you spent your marketing dollars for the year. Using this information to develop marketing ratios will help you determine next year’s marketing budget.

Start by figuring your marketing and advertising expenses in each of the following suggested categories:

  • Digital marketing – website development or enhancement, search engine optimization, pay-per-click advertising, remarketing, online ads, social media
  • Gorilla marketing – door hangers, canvassing, bus stop benches, community events, fundraisers, club memberships
  • Logo branding – tank logos, vehicle wraps, building signs, job-site signs, billboards
  • Customer communications – newsletters, statement stuffers, email, customer promotions (budget plans, price protection, service plans)
  • Direct mail to prospects – letters, postcards
  • Donations and sponsorships
  • Trade shows – home shows, builder shows, etc.
  • Yellow Pages
  • Print advertising – newspapers, advertisers, Val-Pak, coupons
  • Radio
  • Television
  • Marketing personnel – dedicated staff cost or percentage of time

By determining the percentage of the total marketing expenditure for each of these categories, you will develop your first set of marketing ratios. Review these ratios to determine where your spending priorities may be out of line.

Do you have spending gaps in categories that are important to pursue in your marketing area or are you wasting money in categories that are bringing no measurable results? Are you following your competitor’s lead or are you spending your advertising money on what really works for your company? Are you investing enough in categories that are trackable and bring real results?

For example, today’s most successful marketers spend 50 to 70 percent of their marketing budget in the digital marketing category because results are trackable and they feel it is the best way to help retain customers, sell them more product and find new customers. It may be time to consolidate your marketing efforts and spend your money in more effective categories.

Another important marketing ratio to track is “dollars of marketing per active account.” This is calculated by dividing your total marketing expenditures by the number of active customers you have. Tracking this number annually can help you determine if your marketing investment is bringing you the kind of results you need to retain and grow your business.

One of the most helpful marketing ratios for budget planning is “marketing dollars spent as a percentage of total gross profit.” Most of the successful companies with which I work spend 4 to 6 percent of their total gross profit on marketing, with some going as high as 10 percent. Following the trend of this ratio for the current and past years is a leading indicator to help you determine the amount to budget for marketing and advertising next year.

Taking the time now to develop and analyze your marketing ratios will simplify your budget process and improve the return on your future marketing investment.

Tom Jaenicke is vice president of propane marketing services for Warm Thoughts Communications.

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