APPRENTICE TIPS: Marketing costs for retail business

Julius Bulili

So, you’re working on the plan for your new retail shop. You’re a start-up, so you have many difficult questions to answer. One of the main ones is how much should you spend on marketing your retail business?

Evaluating startup costs can be difficult for new retailers. An effective, well thought out business plan is paramount. It’s required if you need investors or a loan to get started. There can be a lot of stress and tension when creating the plan, especially around marketing.

But the bottom line is many of the figures for the business plan are estimates. But you can never be too conservative.

Each retailer’s marketing strategy will depend a great deal on which market segments they have chosen as their target. Location, media strategy, and other factors will determine marketing costs.

To estimate marketing expenses, start with the amount of monthly retail sales you need your shop to generate. For this, don’t consider what you want to sell, rather what you have to sell to stay in business. In the first year of your retail shop, it is imperative to publish two numbers for the sales staff each day The first one is your “cash flow” number and the second one is your sales goal. Every employee has to know that if you don’t at least hit the cash flow number, the store could not pay its bills - including employees! This technique shall really rally the troops, but it will also give them a sense of trust in the shop.

They would know that their jobs are secure if they hit the cash flow number, but also they will know that their ability to keep that job is related to hitting the sales goal.

Once you have set you sales budget, then choose a percentage of that amount to budget for marketing and advertising.

As you begin your business and measure the productivity and results of your efforts, you can increase or decrease that amount. The range for marketing percentage of sales is based on your retail segment. For some retailers, it requires a very modest marketing budget. In others, it requires more to get people to notice. Consider things like how crowded your segment is in town? Or what are the costs for advertising in your local paper. Generally speaking, a successful retail shop/store will spend between 3 and 5 per cent of sales on marketing. Spend more than that and you will be “dependent” on advertising - meaning customers will only respond when they see an ad. Spend less and your traffic will suffer.

Let’s say your business needs to generate Sh 10,000,000/- a month in sales in order to make a profit. If you choose to apply 3 per cent of your monthly sales to marketing, then you have Sh 300,000/- for marketing. As you build your marketing strategy, you’ll learn where to best spend that money for the greatest coverage.

Do not put all of your startup marketing shillings in one place. Too many retail startups make the mistake of putting all of their money in newspaper or a billboard. When you first open, you do not know what medium a customer will respond too.

You have to test and explore and try different venues and mediums to see what is the best return on investment (ROI) for your store.

Also consider that there are less expensive ways to market your shop/store than advertising. Social media, cross promotions with other retailers or business and events in the store all drive traffic but cost much less than a newspaper ad.

By Julius Landou Bulili | Small Business Coach| Email: [email protected] or [email protected]