Is marketing expense fixed or variable?

Marketing expenses are a great opportunity for growth, so it’s important to have a firm understanding of what they are, how they’re calculated, and how to manage them.

You can view a breakdown of your marketing expenses and performance in your monthly or quarterly reports, or you can set up an expense report on your financial software for a more detailed analysis.

A common calculation for marketing expenses is gross profit before marketing, or GPM:

  • GPM = (CPM CPA)

In this example, CPA (cost of goods sold) is the cost of goods sold, and CPM (cost of marketing) is marketing expenses, which can include things like advertising, hiring, and other marketing expenses.

GPM = (CPM CPA)

For a small to medium-sized company, the total amount paid to marketing should be around 20% of gross revenue, or less. For a large company, the total amount paid to marketing shouldn’t exceed 4% of gross revenue.

The amount of marketing expenses that should be reported are:

  1. Spend on marketing activities that are directly related to the success of your business things like advertising and SEO should be included.
  2. Spend on marketing activities that aren’t directly related to the success of your business, but which are still important to the overall health of your business employee training and onboarding should be included.
  3. Spend on marketing activities that aren’t directly related to the success of your business and that are not required for the success of your company these should be reported as an expense over the course of the year, and are not considered part of the marketing expenses for the year.

How to manage marketing expenses?

If you are new to running a business, you might be wondering how to manage your marketing expenses. Here are some tips and best practices to get you started.

1. Know your marketing expenses

It’s important to understand what marketing expenses are, how they’re calculated, and how to manage them.

For example, let’s say you have a digital marketing agency that costs $1 million per year. In that case, your annual marketing expenses would be:

  • $1 million marketing expenses.
  • $1,000,000 marketing campaigns.
  • $100,000 email marketing.
  • $10,000 SEO.
  • $5,000 Facebook Ads.

2. Keep track of your marketing expenses

Marketing expenses are a great opportunity to increase your growth. Once you’ve calculated them, it’s important to keep track and make sure you don’t waste money on activities that aren’t helping your business.

Setting up a quarterly or monthly expense report on your financial software will give you a good overview of your marketing expenses and performance.

This expense report can help you decide how much to spend on marketing, and can help you see which activities are worth the most.

3. Keep the total marketing expenses below 20% of your total revenue

As we said before, even a small company can benefit from marketing costs. There are also some industries where marketing expenses can be high, and there is a balance to be found.

For example, many brick-and-mortar businesses will spend more on marketing than a restaurant.

If you can, stick to spending 20% of your total revenue on marketing expenses. Remember, the amount of marketing expenses that should be reported are:

  1. Spending on marketing activities that are directly related to the success of your business things like advertising and SEO should be included.
  2. Spending on marketing activities that aren’t directly related to the success of your business, but which are still important to the overall health of your business employee training and onboarding should be included.
  3. Spending on marketing activities that aren’t directly related to the success of your business and that are not required for the success of your company these should be reported as an expense over the course of the year, and are not considered part of the marketing expenses for the year.

4. Learn from your marketing expenses

You should never spend more money marketing than you can get back from your marketing efforts. This is why it’s important to keep track of your marketing expenses and performance.

For example, let’s say you run a restaurant and marketing expenses are $200,000 every year. This means you can get back only $100,000, or 20% of your marketing expenses.

It might make sense to spend more on marketing than you can get back, but if you do, you should get an estimate for future marketing expenses and performance. If you don’t, you’ll be stuck with a higher marketing spend, which isn’t a good thing.

5. Don’t be afraid to change your marketing budget

There will always be some uncertainty about marketing expenses. Let’s look at an example.

You have a small company that’s been running for two years and you’ve been able to reduce your marketing costs 50%. But you’re worried that you may end up looking unsavory if you suddenly increase your marketing expenses.

You can see the benefit of reducing your marketing expenses, but you don’t want to do it too quickly. After all, you aren’t sure if you’ll be able to grow your business as a result of your marketing expenses.

To combat this, you can take a step back and analyze your previous marketing expenses and performance. You might find that you can cut your marketing costs by 50% without losing your business.

6. Review your marketing expenses, and adjust your marketing strategy if necessary

The next step is to review your marketing expenses and performance, and make sure you don’t waste money on activities that aren’t helping your business.

This is a great opportunity to evaluate your marketing strategy and make sure it’s helping your business. If your marketing strategy isn’t going as planned or is hurting your business, then you should look at ways to change it and/or adjust your marketing budget.

It’s important to make sure your marketing budget is aligned with your overall business goals.

If you’re new to marketing, it’s also important to understand that marketing is a long-term strategy. You can’t just change one aspect of your marketing strategy at a time, and expect to get results immediately. Your marketing strategy needs to be a part of your overall business strategy.

7. Track your marketing results

How can you tell if you’re getting the results you’d like from your marketing plan?

It’s important to keep track of your marketing results, and to make sure you’re not wasting money on activities that aren’t helping your business.

It’s also important to keep track of your marketing expenses, and to make sure you’re spending your marketing dollars wisely.

Now over to you

You’re now armed with the information you need to make a smart and successful marketing budget.

It’s important to use your marketing budget as a long-term strategy, rather than as a quick fix for marketing costs.

It’s also important to track your marketing results, and to make sure you’re not wasting your marketing dollars on activities that aren’t helping your business.

If you already have an annual marketing budget, then you can move on to planning your budget for the next year, and setting up your marketing strategy for the year.

Images by Freepik

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