There is no hard and fast rule when it comes to spending on marketing

Q: What percentage of our budget should be going toward marketing efforts?

Vitaliy Vinogradov, CEO, Modern Lighting Place

A: There are no hard and fast rules regarding what percentage of your budget should go toward marketing. Increased spending in marketing is not a guarantee of an increase in profit. From selecting the right marketing firm to fine-tuning the right message, many factors influence the effectiveness of any marketing.

Before making any changes to your current marketing plan, it would be worthwhile to perform some basic financial statement analyses. For example, you can use a common-size financial statement to analyze how your company is performing against your competitors. A common-size financial statement shows all items as percentages of a common base figure, such as sales.

Let's say ABC has $200,000 in sales, $120,000 (or 60 percent of sales) in cost of goods sold, $50,000 (25 percent of sales) in other expenses (rent, salaries, utilities etc.) and $4,000 (2 percent of sales) in marketing expenses.

ABC would have generated $26,000 (13 percent of sales) in net income.

Conversely, let's say XYZ has $500,000 in sales, $350,000 (70 percent of sales) in cost of goods sold, $80,000 (16 percent of sales) in other expenses and $10,000 (2 percent of sales) in marketing expenses.

XYZ spends 2 ½ times more on marketing expenses than ABC, yet both companies spend the same on marketing as a percentage of sales. While XYZ is more profitable than ABC in dollars, ABC is outperforming XYZ in net income as a percentage of sales.

This example shows that higher spending in marketing may not necessarily translate into higher profit.

From an operational perspective, you may consider aligning your marketing efforts to your growth strategy. It also is important to remember your customer base. For example, household consumers, businesses and wholesalers are going to have different needs and require different marketing strategies.