Calculating the Marketing Allowable – Or How Much to Spend on Marketing

Before starting a direct marketing campaign, managers often wonder, “How much should I spend on the actual marketing costs?” There’s actually a way to calculate this figure. You don’t have to guess, leave it to chance, or the whims of the accounting department.

Called the marketing allowable, this figure is a form of sensitivity analysis that gives you a good guestimate of the amount left to spend on marketing after the major costs are accounted for.

In order to calculate the marketing allowable, you’ll need a few numbers handy:

  • Net sales. If you don’t have your net sales figure, take your gross sales and subtract out the returns. That’s your net sales.
  • Variable costs: To figure out your variable costs, add together the cost of good sold by percent of orders, the fulfilment cost as a percent, and the bad deby percent, then multiply it by sales. Did your eyes just glaze over? Take a deep breath. You should know your cost of goods sold. If you don’t know your fulfillment costs, use a placeholder. Twenty percent (.20) is not unrealistic.
  • Overhead costs
  • Premiums: If you give away little items with every sale, like a free exercise DVD with the purchase of a home gym system, the DVD is the premium. The cost to make each is the number you’re going to use to determine your marketing allowable.

Marketing Allowable: The Formula

The formula to calculate the marketing allowable looks like this:

Net Sales

- Variable Costs

- Overheard

- Premium

= MARKETING ALLOWABLE

What It Looks Like with Real Numbers

I’ll plug in some numbers now from a real client, who has graciously given permission for me to use their numbers as long as I don’t mention the name of the business. It’s a small, family owned e-commerce business selling gift items.

Net Sales: $48,000 (rounded out for our example)

- Variable Costs: $11,000

- Overhead: $28,000

- Premiums: $1,000

Marketing allowable: $8,000

So technically, this client is “allowed” or can spend about $8,000 on direct marketing to obtain $48,000 in net sales. Remember that I kept the numbers small and nice and round so they would be easy to follow. In truth, a company generating these revenues would need a much higher net sale figure to pay a salary – which I’d include in the overhead line as part of the operating expenses of the company.

When to Use Marketing Allowables

Calculating the marketing allowable isn’t just a subtraction and decimals example, even if you have to work some decimal magic on the variable costs line. It’s actually a useful tool for budgeting. if your company does zero-based budgeting, the kind where you have to justify your spend from the bottom up for each fiscal year, you’ll want to know your marketing allowable for the product or product category. You can easily run some figures and adjust amounts in the spreadsheet for the premiums, for example, or the overhead costs, and see how it impacts the marketing allowable.

Remember that marketing numbers are rarely fixed in stone. One of the benefits of placing these numbers into a spreadsheet and playing around with them is watching how changing one line in the formula impacts others. For example, if you can keep your overhead nice and low, look at how much is left to funnel into marketing. And if you could funnel more money into marketing, how many more potential customers can you reach? Conversely, if you up the premium amount and offer a spiffy DVD player with that DVD, you may have less for marketing, but if you test that concept and it pulls in more sales, it can be a winning combination.

Direct marketing is all about measurement. Math is the language of reality, and direct marketing, so heavily based in math, takes nebulous marketing concepts that scare CEO’s and makes them real by adding dollars, cents, and sales to the conversation.

So calculate your marketing allowable today, and play the numbers out. Maybe there’s more in your marketing budget than you thought!

Sample Social Media Marketing Plan

Need a sample social media marketing plan? This is a quick and dirty sample plan without any BS. This plan will assume that you already have accounts with Twitter, Facebook, MySpace, and YouTube. This sample social media marketing plan also assumes that you have already made your accounts personalized and interesting so we can focus right in on the activities you need to execute.

1. Twitter Make it a daily habit to follow 90 to 110 new people every single day. You can do this manually or use a program like Twitter Friend Adder to accomplish this. Make sure you filter out other marketers and only follow real people who have an interest in the niche that you are marketing. How do you quickly and easily find these people? Use the search bar at the Twitter home page, type in your topic, and then type “-http” and “-www” to only find Tweets that are not promoting an external link. These people are laser targeted.

Start using a service to automate your Tweets like SocialOomph. Twitter no longer allows duplicate Tweets but you can use the recurring Tweet feature to schedule recurring Tweets with spin-able text so that each recurring Tweet is different. You will need to go in daily or every other day to make a slight change to each Tweet in the spinning text but you can make a change as subtle as including that days date. You just have to do something minor to make each Tweet unique so it won’t be rejected by Twitter. You would probably want to put in about 24 different Tweets that include your marketing message and set up the recurring Tweet for once every hour. Make sure you always answer the question, “What are you doing?” For example, if you are selling an e-book about how to be a better bass fishermen, don’t send out a Tweet like, “attention all bass fishermen, go to this link to improve your fishing results”. Instead, send a Tweet like, “I’m reading this book to learn new bass fishing tricks to embarrass my buddy when we go fishing next week.”

2. Facebook. You should basically be doing the same thing with Facebook except that you probably wouldn’t want to add more than about 20 new friends per day to avoid getting your account deleted. Use the search function to find people who list your topic as and interest and who are part of a Facebook group centered around the topic. Broadcast your marketing message through status updates, similar to how you would using Twitter. Search for some applications within Facebook to link your Twitter account to your Facebook account so that all those automated marketing Tweets come through as status updates on Facebook. Stay away from using direct messages to Facebook friends for marketing. Make your direct messages as personal and “non-salesy” as you possible can to establish a relationship and let the status updates do the selling.

3. YouTube. Use a friend adder program like Tube Blaster Pro to automatically add 25 to 40 friends a day who have videos up about your topic. Whatever you do, do not try to sell to these friends through direct messages, video comments, or channel comments. Use the friend adding program to gather friends and make content-rich videos and then share these videos with your YouTube friends. Make sure these videos offer rich content and that they are 90% content and only 10% sales pitch. You can also link your Facebook and Twitter accounts to your YouTube account so these videos you make will be shared with your Facebook friends and Twitter followers as well. Create and share at least 1 video per week this way but no more than

4. MySpace. Use your MySpace page to combine all of these tactics. Write a long bio about yourself, your marketing niche, and what you’re all about. Make it interesting. Embed as many of your YouTube videos as you feel like on your MySpace page. Search within MySpace for applications that will link your Twitter account to your MySpace. Use a program called MySpace Friend Blaster Pro to add 90 to 110 new friends a day.

Direct Mail Marketing for the Car Washing Business

Direct mail marketing for a carwash business seems to be an excellent tool to increase the number of customers coming in. It increases the new customers and each new customer potentially could become a regular customer, which means ongoing income and revenue.

How often should I carwash business send out direct mail marketing coupons in coupon packages? Well, I recommend looking at a map and drawing a circle around your carwash, which is about a 10 to 15 mile radius. Then, look at the ZIP codes within that 10 to 15 mile radius and each month send out a coupon to one third of the pie.

This means everyone will receive at least one direct-mail marketing coupon package every three months or four times per year. By doing this you will bring in new customers and not be training your existing customers to only come in when they get a coupon in the mail.

Direct-mail marketing when done correctly can be a carwash business best friend. It does not cost that much and it yields great results and many carwash owners believe it is better than radio actually dollar for dollar. If this is true then isn’t it about time you start using direct-mail marketing discount packages to promote your business? Please consider all this in 2006.