Where do you get budget numbers for a website? How do you set a budget and organize it? What are some standard ways to measure your budget? How do they apply to a website plan? In business in general, there are several approaches you can take to develop a budget, these are based on some generally-accepted rules of thumb. For example, software publishers tend to spend 40% of sales on sales and marketing expenditures, according to some commonly-accepted industry guidelines. Business Plan Pro, the leading business plan software, actually includes general guidelines for advertising expenses and operating expenses, as percent of sales. Some other examples might be:
- Percent of projected gross sales
- Percent of past gross sales
- Per unit sales
- Seasonal allocation
- Projected cash flow
With website expenses, however, you won't be able to find generally accepted guidelines or rules of thumb. The Internet business is too new, and too diverse, for standards and guidelines in this area. You'll have to go back to business basics and make sure what you're planning to spend is in proportion to the benefits you expect to receive.
When in Doubt, Consider the Contribution Margin
The contribution margin measures the business financial impact of a website project, considering gross margin (sales less cost of sales) and identifiable operating expenses. The contribution margin is gross margin less the specific related operating expenses. This is a good way to measure the business value of a website.
Select a budget methodology that will work best for your business. You may want to make this choice based on how you track your sales and revenues, or based on industry standards.
