Alan Gayle is a sales and marketing consultant specialising in the construction industry. In this column he offers advice on how to make an impact in the market. This time he has some advice on how to set your marketing budget.

After the question “What, exactly, do you do?”(which I’ll be covering next month, by the way) the most common question I am asked is: “How much should I be spending on marketing?”

Although I usually answer marketing questions as directly as possible – because I actually dislike the all too common, jargon-filled waffle as much as you do – my answer to this question has to be: “It depends.”

What does it depend on?

Here’s a list of 10 points to get you started:

• Your current position in the market
• Your ambitions for growth
• Your target customers
• You competitor’s marketing activity
• Your business objectives
• Your current profit margins
• Your marketing priorities and their timescales
• Your in-house resources
• You lead to sales conversion ratio
• And everyone’s favourite, your business turnover

This list is not exhaustive but if you seriously consider these points it should become apparent how much you need to spend.

Don’t even try to answer the question of ‘how much’ until you know what your objectives are and what strategy you intend to use to achieve them.

If this all sounds familiar it’s because it is. The budget is the fourth section of your all important marketing plan, between strategy and implementation.

To re-cap, the six sections are:

1. Review – where are we now?
2. Objectives – where do we want to be?
3. Strategy – how do we get there?
4. Budget – what will it cost?
5. Implementation – who does what and when do they do it?
6. Evaluation – what is our return on investment (RoI)?

Some potential clients have asked me what percentage of their turnover they should set aside for their marketing budget.

Once again, no straight answer, I’m afraid. When I was studying, the Chartered Institute of Marketing (CIM) said a ‘marketing-focussed company’ should budget 10% of its annual turnover for marketing.

If we look to the big consumer brands, we see some huge marketing budgets. Walt Disney spends $2,000million dollars annually while Nike spends a relatively meagre $335million.

The real giant among marketing spends is Proctor & Gamble, with a whopping $4,180million spent worldwide on marketing during 2009. With a correspondingly gigantic turnover, the company seems to support what I was told all those years ago by my CIM lecturer, because they have averaged just under 11% of turnover for the past 10 years.

In reality, the percentage doesn’t really matter if you stay focussed on the evaluation section of your marketing plan. Why? Because you should spend more on what works and nothing on what doesn’t.

I don’t like to talk in terms of percentage of turnover because margins vary considerably between companies and between product lines within the same company, so a higher percentage of the gross profit (GP) of the product / service you’re actually marketing can be a more meaningful figure. Unfortunately, it also requires a lot more time and analysis to calculate your budget based on GP. So to keep things simple I’ll stick with the percentage of turnover model.

Say you allocate 3% of last year’s turnover, which I think is about the average for the UK building industry, for this year’s marketing budget. Keeping the numbers simple, with a turnover of £1million, your marketing budget will be £30,000. If your RoI on that £30,000 is, say, £90,000, you’d be mad to keep your marketing spend at 3%. Why not double it to £60,000 and increase your RoI to £180,000?

On the other hand, if your RoI is only £15,000, you might as well reduce your annual spend to 1% or even less. What’s the point of spending money on marketing if costs more than it generates?

Better yet, re-invest that 3% in a new strategy that actually produces the results you’re looking for.

But remember: You’ve got to know the RoI for every element of your marketing to create accurate forecasts and make informed decisions.

Alan Gayle has worked in sales and marketing roles in the construction industry since 1983. Following a successful career with some of the UK’s leading building product manufacturers, he has worked in the stone sector for the past 10 years. He now runs Keystone Construction Marketing, a marketing agency specialising in the construction industry. The agency works with building contractors, subcontractors and building product suppliers to help them increase their sales and improve their margins.