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Setting Your Budget With The Percentage of Sales Method – and Why I Wouldn't Recommend It

I’m including the percentage of sales method in my mini series on budget setting, as I’ve seen it recommended on other marketing sites for use by small business owners .

However, I don’t personally recommend it for you, and here’s why:

The percentage of sales method means that you set a budget as a percentage of your intended ‘sales’. So, say you want 50 new customers and they are worth £50 each to you in income. That means you have targeted for £2,500 of new customer income this year. I appreciate you can’t retire on this, but bear with me as it makes the maths easy!

If you were using the percentage of sales method to set your budget, you would fix a percentage of the £2,500 for your marketing. In this example we’ll use 10%, so that gives you a marketing budget of £250 a year, or roughly £20 a month.

Now, that may not seem too bad, but what if your income goals are a lot higher than that? And I assume that you’d like a little more than £2,500 a year in income?

So what if you do want to earn more? Let’s say that you’re launching a range of information products and plan to sell £50,000 worth this year. 10% of that is £5,000, which is about £416 a month. This wouldn’t really cause a problem if you were already making the income to fulfil that marketing budget. But what if you were starting out and the £50,000 first year sales hasn’t actually happened yet?

Do you see the problem?

You could find that your marketing budget gets set way too high, and gives you no flexibility. This approach works for high volume manufacturers, or when your turnover is high enough to sustain this kind of marketing budget, but it’s not really very realistic for the average small business owner.

When you are running a small business, budget flexibility is key. You need to set one, but you absolutely want to have control over it. It’s your money you are spending, not that of some large corporation!

By all means, if you’d like to use this method of setting your marketing budget, then feel free – it’s your business and ultimately your choice. Different budget setting methods suit different types and sizes of companies. This one tends to suit the larger companies better – so maybe it’s something to aspire to as you build your business!

Hope that helps.
Happy budget setting!
See you next week,
Kim.


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