Small businesses often do not know how much to spend on marketing. Decisions on expenditure are made on a 'whatever we can afford at the moment' basis, which among other things means that the marketing budget is the first to be squeezed when times are hard.

Instead of this 'finger in the air' method, your annual marketing budget should be based on:

• Last year's budget - perhaps with a small increase
• What you think your competitors are spending
• A percentage of sales (last year's or next year's)

Ideally, your annual expenditure on marketing should reflect the sales growth you want to achieve in the coming year. It may sound odd, but you don't always want to grow at the fastest rate possible. For example, there is no point in setting a growth target and a corresponding budget if you cannot meet the extra demand.

Typical growth targets and the corresponding marketing budget as a percentage of sales are:

Steady growth - a budget of 2%-3% of sales
Rapid growth - 5%-10% of sales