How Much Should Companies Spend on Marketing?

Posted at Sep 5, 2019 10:11:00 AM by THAT Agency | Share

How much marketing budget should you assign? This will vary by a business's needs, but there are a few guidelines that help make a marketing budget breakdown simpler. The U.S. Small Business Administration recommends that 7 to 8 percent of gross revenue should be dedicated to marketing. This is recommended for businesses which are under $5 million a year in sales and that have a net profit margin of 10 to 12 percent. How do other elements impact this? Can you spend less, and how is this broken down between long-term efforts vs. major projects?


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New vs. Established Businesses

A recommendation like that one can't cover all businesses. Newer companies need to spend more on marketing - up to as much as 20 percent of gross revenue. They need to work hard to get their brand identity stuck in people's heads, build a customer base, and reiterate and reinforce their values and appeal.

A business that's firmly established may be able to get by on as little as 5 to 6 percent of gross revenue spent on marketing. This may be enough to maintain their position and grow reliably, though major growth efforts would likely require more investment.

Long-term vs. Major Project

Be aware that a marketing budget covers any and all costs for marketing, P.R., promotions, social media, sponsorships, AdWords, influencer partnerships, and events. Let's say you're having your entire website re-built or you're putting on a major event. These are specific, major projects that will usually require a budget that goes beyond what's allotted for long-term marketing efforts and everyday investment.

Let's say you fit the U.S. Small Business Administration's recommendations perfectly. Does that mean you should be spending 7 to 8 percent of gross revenue on marketing consistently? Chances are better that you'll be spending 5 percent on long-term efforts as a foundation, but that number may jump to 10 percent or higher in a quarter where you have a major project, such as a website rebuild, a major event, or a promotional blitz.

The same goes for businesses that are particularly seasonal. Maybe you do most of your business in the winter and things are quieter over the summer. You'll probably have double or more the marketing budget during those colder months. If you rely on holidays for major sales figures, the same holds true.

All this may average out to 7 to 8 percent of your gross revenue over the course of a year, but it doesn't mean that you should stick inside that range every month or quarter. Being too strict about staying in that range can hamstring you when you need to expand your budget and can prompt you to spend more than you need to when you can conserve it.

Marketing Budget Floor

Long-term efforts are what feed your marketing strategy and build your brand in ways that last. Content creation, SEO strategy, the maintenance and service that keep your site and sales running smoothly – these are all long-term efforts. These are the regular investments that mean your marketing is always working for you, day or night.

The budget for elements such as these will typically create a foundation, or floor, for your marketing spending. Generally, this can be understood as 5% of your gross revenue. You don't want to go below this figure or cut into it too much.

Newer companies may be spending twice this as a floor because they need those long-term elements established and featured so that they can start producing results.

Marketing Budget Expansion

Marketing projects can be understood as a website redesign, events such as a tasting, a festival, or participation in local events, or promotional blitzes. Anything that goes outside regular spending or long-term investments is a project that will require you to include additional budget.

It's important that your foundation or floor isn't cut into for these things. If you cut out long-term elements for a short-term risk, then you're sacrificing growth and resiliency. Additionally, those long-term elements are what allow you to get the most out of redesigns, events, and other projects.

The customer who spends money at an event and maybe buys from you once is nowhere near as valuable as the customer you get at an event, who can then read and share your content with others, easily buy from your website due to chat bot or app investment, and who you're able to appeal to down the road through segmented content targeting.

That customer will buy for years and years - and will get others to buy as well. Events and special projects are great for keeping pace and developing new potential leads quickly, but it's the long-term marketing investment that allows you to convert these leads into repeat customers who draft others into following your brand as well.

Marketing as Investment

A marketing budget breakdown should be based on goals. It should focus on marketing as an investment seeking specific results that can be measured. Some businesses engage their marketing as a nuisance expense and then wonder why their efforts are ineffective.

To be effective, marketing cannot be approached from a perspective of “how do we spend this money” or “how do we keep the marketing department happy?” It should be approached from a perspective of identifying which investments will still be effective and producing results a year or two down the road.

Priorities Influence Budget

Set your marketing goals. Figure out how to achieve them first and foremost through long-term strategy, investment, and content creation. This may include major projects such as a website redesign that take you beyond your foundation budget. Remember to ask what will continue to produce results going forward.

Establish your priorities when it comes to what you're measuring. You may vastly surpass one goal and fall short of another. Those goals may not be equal. How are those goals prioritized? How will you compare yourself to the performance of competitors? Without a plan, you can look at analytics and come away joyful or depressed depending on whatever you want to find. That's why you need to know what your targets are and how they're prioritized before you start analyzing the numbers.

Once you've done that, decide where you need to spend more. Do you have the infrastructure in place to fully take advantage of the new leads that can be produced by events and other major projects? Are you seeing one investment continue to build and another plateau? Where is your foundation still weak and how can you shore it up? This allows you to shift and assign budget in ways that are effective, and as always – that will continue to produce results and bring in new customers in the long-term.

If you're looking to get the most from your marketing budget, consider partnering with THAT Agency. Our team of digital marketing professionals can help you provide a greater return on your investment.


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Tags: Marketing Strategy

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