How Much Should You Spend on Marketing?
When calculating your marketing budget, all the costs related to marketing and advertising should be included, such as:
- Digital and print advertising
- Public relations
- Events and tradeshows
- Social media
- Marketing automation
- Promotional giveaway
- Vendor expenses
Note: On-site marketing staff costs may be considered an HR expense, but should also be included when you calculate marketing ROI.
Unfortunately, knowing what to include in your budget doesn’t tell you how much you should be spending. Here are some simple guidelines that can help you get started:
The U.S. Small Business Administration suggests spending seven to eight percent of gross revenue on marketing and advertising if your company has annual sales of $5 million per year or less, and your net profit margin is in the 10 to 12 percent range.
How do you measure up?
- Gross Revenue: $500,000 = $35,000-$40,000 for marketing and advertising
- Gross Revenue: $1.5 million = $105,000-$120,000 for marketing and advertising
- Gross Revenue: $3 million = $210,000-$240,000 for marketing and advertising
- Gross Revenue: $4 million – $280,000-$320,000 for marketing and advertising
Your marketing budget may increase in some years because you are developing your brand or making significant changes to your marketing plan. If you re-brand or reposition your company, develop a new website, start social media marketing, or implement marketing automation with ad retargeting, you will likely exceed your budget numbers, and for good reason. You need to invest more to build the foundation of any marketing funnel in your plan. Otherwise, your marketing tactics may struggle to get the desired results.
What is the foundation of good marketing?
- Brand core: Your company’s purpose, values, differentiating factor, and elevator pitch. If you don’t know who you are or what makes you different, how do you expect to compete in a crowded marketplace?
- Brand logo and brand guidelines: All the different versions of your logo with guidelines that educate your team and vendors on your colors, fonts, logo usage, etc. Consistency in your company’s appearance elevates the sophistication of your image.
- Target audience profiles: Details on who your ideal customers are – their values, demographics, buying habits, etc. Who are you selling to and where can you reach them?
- Marketing strategy: What are the goals and metrics that will drive effective marketing? Setting achievable and measurable goals helps you understand the return on investment you receive for their marketing dollars.
- Digital presence: Your website, social media accounts, other review sites, etc. A modern, easy-to-use website and active social media accounts build awareness and drive sales.
When it comes to determining a marketing budget, it’s important to keep in mind that your plans for growth will affect the amount you need to allocate. If you have plans to grow your organization’s revenue, need to improve the foundations of your marketing (listed above), or need to acquire an in-house marketing staff person or work with an outsourced marketing agency, you will want to allocate a higher percentage to the marketing budget.
“If you are marketing from a fairly static annual budget, you’re viewing marketing as an expense. Good marketers realize that it is an investment.” – Seth Godin
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