How much should you spend on marketing?
It’s no secret that marketing can play a huge role in growing a business. But at what cost? With so many channels and marketing services available for all stages of a business, planning a budget and the best allocation of that budget can be challenging.
What will your marketing budget cover?
Before getting into how much you should spend on marketing, it is important to note what may be covered in the marketing budget. There is a wide range that falls under what marketing entails, from branding, market research, content marketing, advertising, public relations, launch events and influencer marketing. On the day to day, you may be spending money on digital marketing such as paid ads on social media or search engines, email marketing campaigns, or more traditional marketing such as billboards, mailers, radio or tv spots. Of course, you are also paying for all the tools and time that go into creating marketing content as well. Knowing the scope of work needed for your business goals can be simple– we’re breaking down how to calculate your marketing budget so your business values and spending align.
Calculating your marketing budget
Over the past few years, a popular rule for marketing budget allocation has been to spend 7 to 8% of your gross revenue on marketing and advertising. This stat is based on doing less than $5 million a year in sales, which is about 10 to 12% of the overall budget.
Our answer to clients? Typically around 10% of a company’s revenue. This obviously can vary company by company. One factor that should be taken into consideration is: how new or established is your company?
New vs. established companies
New companies (1-5 years in business) should spend more on marketing than older established companies (5+ years in business with brand equity and market share).
For new companies, around 12 to 20% of gross revenue should be spent on marketing. It may seem like a lot for a new company to spend, but it’s for good reason: to get word out about your new product or service!
Established companies on the other hand only need to allocate 6 to 12% of gross revenue to their marketing budget, since they likely already have consumer brand awareness and support.
Forbes’ take on marketing budget allocation is to keep two budgets in mind:
One budget to sustain current revenues
A second budget for robust growth
If you want to maintain current revenue amounts, then 5 to 10% of sales allocated toward advertising may suffice. If you want rapid growth, then you may need to push that number higher, possibly to 20% or more depending on the industry and type of business you operate.
What other companies are spending
You may be thinking – okay, I have recommendations on how much to spend, but what are companies actually spending?
Bi-annually, the CMO Survey collects data, which includes current and future projected marketing budget and allocation spending, from top marketers across various industries in the U.S. The latest CMO Survey results from February 2022 show that marketing budgets as a percent of overall budgets are rising to 11.7%, resetting to pre-pandemic levels, while marketing budgets as a percent of revenues are increasing to 10.3%. In addition, yearly growth in marketing spending broke 10% for only the second time in a decade and is predicted to rise further over the next year to 13.6%.
B2B vs. B2C
The CMO Survey report also shows differences on marketing budgets between B2C and B2B industries. While B2C sectors show an average of 11.45% of revenue allocated to the marketing budget, the B2B sectors spend lower with an average of 9.7% of revenue dedicated to marketing spending.
Key takeaways
There is no one right number or answer on how much you should allocate to your marketing budget. In fact, there are several factors that should be considered when determining what your marketing budget should be, including:
Size of company
Company type (B2B vs B2C)
Overall goals whether that be to rapidly grow your business or maintain revenue
With these factors in mind, you may be spending anywhere from 7 to 20% of your company’s gross revenue.
A conscious marketing spend
When working with a new client, our approach begins by looking at their brand and company as whole: researching everything from the overall industry market and their competitors to understanding what their audiences are thinking, feeling and seeking. With all the collected data, we are able to consciously craft strategic and thoughtful marketing activities tailored to each brand’s need in telling their story. This research-backed and intentional approach also applies when working with a client on their marketing budget. We will partner with you on finding the right allocation options for you, spending carefully and consciously with purpose and intent.
Whether your business is new or established, we are excited to support you in finding the right path to take your brand’s storytelling to the next level.
Contact us to learn more about how we can help find the right marketing budget and strategies for you.