How Much Money to Spend on Business Marketing and Advertising

A retired business executive, Ashu Bhandari spends part of his spare time providing consulting services. Seasoned in business management, operations, and promotion, Ashu Bhandari utilizes his expertise to counsel local businesses in areas of public relations and advertising.

Among the most difficult parts of owning a business is determining how much money to allocate toward business needs, such as marketing and advertising. For companies making less than $5 million in sales annually and earning 10 to 12 percent net profit margin, the United States Small Business Administration recommends setting aside 7 to 8 percent of a business’ gross revenue for marketing use.

However, this number varies according to the competitiveness of an industry and the length of time in operation. In some instances, marketing experts suggest small businesses use up to 3 percent of revenue to promote their products or services.

In fact, a 2010 Chief Marketing Officers Council survey indicated a majority of chief marketing officers spent less than 4 percent of a company’s gross revenue on promoting and advertising the business. In total, nearly three-quarters of survey participants allocated 6 percent or less to marketing initiatives.

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Buying a Small Business – Points to Consider

As a consultant, Ashu Bhandari has advised numerous clients in the purchase of local small businesses. Community minded, Ashu Bhandari offers these and all other consultancy services free of charge.

Before buying a small business, an investor should first understand the value inherent in the purchase. The buyer may be intending to operate the business, sell it, or liquidate its assets. Buyers who are planning to liquidate can more easily assess the value of the business’ physical assets, but those who would like to operate the business or sell it have a more difficult task at hand, as these buyers need to know how much revenue the company generates and if it turns a profit. Buyers who intend to operate the business should use this information to assess whether the purchase can provide them with acceptable compensation while also earning an additional profit.

Experts also suggest that buyers approach brokers or other professionals for advice. Outside consultants can help a buyer identify potential risk and advise on how to structure an arrangement to mitigate that risk. After performing additional due diligence, a buyer can approach the seller with proposed financing terms and purchase contingencies.