Related Posts
Podcasts
As a business owner, you’re aware of the importance of marketing in growing your business. But one question that you’ve likely struggled with is how much should I spend on marketing? And for good reason… the right marketing budget can be the difference between success and failure. You want to strike the right balance between hitting your marketing targets and remaining as profitable as possible. In this article, you’ll learn to determine how much you should be spending on marketing.
How to Determine Your Marketing Budget
Deciding on a marketing budget isn’t as simple as copying the industry standards. Every business is different and there are many factors that should impact your decision.
First and foremost, you will want to understand the different methods you can use for deciding on a budget, and the pros and cons of each.
How to determine your marketing budget methods:
- Percentage of Revenue: This method involves setting aside a fixed percentage of your business’s revenue for marketing. Small businesses with a profit margin of 10-12% generally spend 7-8% of their revenue on marketing (Synx, 2016). The percentage of revenue spent also differs depending on whether you’re a B2B or B2C and whether you sell a product or a service. B2B product industries and B2C service industries spend around 10% of their budget on marketing, while B2C product and B2B service industries spent up to 15-18% on their marketing budget (Deloitte, 2022). This method can be helpful for businesses with predictable revenue streams and a good understanding of their expenses.
- Fixed Budget: This method involves setting a specific dollar amount for your marketing budget. This can be helpful for businesses that have a clear understanding of their expenses and want to allocate a set amount towards marketing.
- Objective-Based: This method involves setting a marketing budget based on specific objectives, such as increasing brand awareness or generating leads. This can be helpful for businesses that have clear marketing goals and want to allocate their budget towards achieving those goals.
- Hybrid Method: This method involves combining two or more of the above methods to determine your marketing budget. For example, a business might use a percentage of revenue method as a base and then adjust the budget based on their marketing objectives and competitive landscape.
Let’s look at the pros and cons of each method.
Pros and Cons
| Method | Pros | Cons |
Percentage of Revenue | – Scales with company growth – Easy to calculate | – Can lead to under or overspending if revenue fluctuates |
Fixed Budget | – Predictable expenses | – Doesn’t adjust for changes in business revenue |
Objective-Based | – Aligns marketing goals with company objectives – Can be more flexible than other methods – Helps track ROI | – Requires specific goal setting and tracking – Can be difficult to determine appropriate spend for each objective |
Hybrid Method | – Combines benefits of multiple methods – Can adjust based on business needs – Allows for flexibility | – Can be more complex to calculate |
Which method should I use?
There is no one-size-fits-all answer to this question since the appropriate marketing budget method you choose to use will vary based on your unique circumstances.
Each method has its own advantages and disadvantages, and the choice ultimately depends on the goals and marketing needs of your business.
A good rule of thumb is to use percentage of revenue for budgeting, unless:
- You specifically don’t want to spend above a certain amount, in which case you should use fixed budget
- You are only planning to spend for a specific time period or campaign, in which case you would use objective-based budgeting.
Industry Standards for Marketing Spending
While looking at the competition can give you insight into how much you might want to spend, don’t become tunnel-visioned into copying industry standards. Your decision around budgeting should be more strategic – meaning, you should take your own circumstances into account.
In saying that, understanding industry standards can be helpful to give you some guidelines on what is already working for other businesses.
Industry Standards for Marketing Spending for Small Businesses
In a survey of 85 small business owners and marketers, 52% said they’re spending $5000–$15,000 USD per month on marketing. We can see this in the below image.
Industry Standards for Small Businesses
Industry Standards for Marketing Spending for Different Industries
Deloitte recently conducted a survey showing the percentage of revenue industries should spend on marketing. In particular, the majority of industries spent above 8% of revenue on marketing, with Consumer Services (6%), Education (3%), Energy (1%), Mining and Construction (3%) and Transportation (6%) spending less than this. The highest spending industries were Technology (21%) and Service Consulting (21%).
Here’s the data:
| INDUSTRY | MARKETING BUDGET (% OF COMPANY REVENUE) |
Banking, Finance, Insurance, and Real Estate | 8% |
Communications media | 10% |
Consumer packaged goods | 9% |
Consumer services | 6% |
Education | 3% |
Energy | 1% |
Healthcare | 18% |
Manufacturing | 13% |
Mining and construction | 3% |
Retail wholesale | 14% |
Service consulting | 21% |
Technology | 21% |
Transportation | 6% |
You know that you need to consider marketing budget methods and industry benchmarks to decide how much you should spend on marketing, however, there are also some other factors that you may want to consider before deciding on a marketing budget. Let’s take a look at these factors.
Factors That Affect Your Marketing Budget
Some of the factors that can impact how much budget a business should allocate for marketing include:
- Company size
- Industry and competition
- Marketing goals
You should consider each of these in your specific business before deciding on a marketing budget. Let’s take a look at each one.
Company Size
Larger companies often have more resources to invest in advertising and marketing campaigns, while smaller companies may need to be more creative and strategic with their spending.
For example, one of the world’s largest and most well-known brands, Coca-Cola spent over $4 billion in 2019 on advertising and marketing, accounting for nearly 10% of its total revenue (Investopedia, 2023).
On the other hand, a local small business like a coffee shop will have a much smaller marketing spend. As such, they’ll need to focus on cost-effective strategies like referrals, word of mouth, local event sponsorships, and social media advertising.
You will need to consider the size of your company and it’s revenue levels when making a decision around a marketing budget.
Industry saturation and competition
Some industries require greater marketing spend due to market saturation or the need for more frequent customer engagement. For example, marketing agencies (such as ourselves) must invest in marketing on an ongoing basis. We also need to continually adapt our strategies to stay ahead of industry trends and changes.
Marketing Goals
Your marketing goals should also be considered when determining your budget. If you have aggressive growth targets or are launching a new product, you may need to allocate a larger portion of your budget to marketing. On the other hand, if you’re more focused on maintaining growth and staying top of mind, then you might need a less aggressive budget.
By taking these factors into account, you can develop a marketing budget that aligns with your goals and resources, while remaining competitive in your industry.
So, how much should you spend exactly?
Determining how much to spend on marketing can be challenging, especially when considering the various methods and factors involved.
While there are no hard and fast rules for determining a marketing budget, there are some general guidelines to consider based on the size of your business:
- Small Businesses: Small businesses typically have a smaller budget and may need to allocate a larger percentage of revenue to marketing in order to make an impact. A general rule of thumb for small businesses is to spend around 7-8% of revenue on marketing.
- Mid-Sized Businesses: Mid-sized businesses may have a bit more flexibility in their marketing budget and can allocate around 9-12% of revenue.
- Enterprise Businesses: Larger companies often have a larger marketing budget due to their size and scale. Enterprise businesses can allocate 12-20% of their revenue to marketing, depending on their specific goals and objectives.
However, it’s important to keep in mind that these are general guidelines, and you should consider your own unique circumstances when determining your marketing budget.
It’s also important to regularly review and adjust your budget based on the performance of your marketing efforts and changes in your business landscape.
Once you’ve decided on a marketing budget, the next thing to do is decide how to spend your budget. Check out this article, where we discuss using inbound vs outbound marketing as potential options for your marketing strategy.
