During a recent business consult and strategy meeting, I had a discussion with a client regarding the set up of a marketing budget. During the conversation, the client discussed how they were considering many areas of marketing previously unexplored. The question came: “What are the industry benchmarks for marketing in their line of business and what dollar amount should they spend?”
It would have been easy to provide a number or percentage based on research and benchmarks of like-sized businesses within the same industry. However, for a growing business in unfamiliar territory, one must dig deeper than just numbers and percentages when making a decision like this. The same is true for other aspects of business where large capital expenditures are required, not just marketing.
WHAT’S YOUR END GAME?
So, where does one begin? The first step Arete Partners recommends for the planning of a marketing budget comes from Stephen Covey, author of the bestselling book “7 Habits of Highly Effective People”. Covey simply says, “Begin with the end in mind”. At Arete Partners, we could not agree more. So, what is your end game for your business? Do you hope to build your business and ultimately retire from it? Or would you prefer to build the business, only to sell at some point down the line? If your hope is to sell, then how much will you want to eventually sell if for?
Other associated questions could be: Where do you want to be 1 year, 3 years or 5 years down the line?
Knowing these answers beforehand allows a business to reverse engineer their processes. With a clear goal in mind, your business can begin to define your value of success and therefore will have a more precise understanding of the associated costs that will allow your process to sail you into the harbor of your goals. You can also answer the question of how the activity will impact the end goal and if there are alternate resources that might accomplish the task.
TIME FOR APPLICATION
If you have not done so in some time, or have never done so, I recommend taking several days away from the day to day activities of the business. It’s time to map out the pathways to your success. Spend time with others who are an important part of the business and who have a vested interest in your success and the success of the enterprise, and do some serious soul searching. Determine exactly what you want out of your chosen business. Once you have “the end in mind” then do the process of creating a visual representation of what that end looks like each step of the way.
Once you have that done, you can then see how the capital used for your project impacts your vision.
For other business-related insights, be sure to visit Arete CFO.