The debate around our marketing and advertising budget is a lengthy one that tends to last year-round within our company. It seems that our marketing team never has enough allocated to fulfill our set objectives. If this sounds familiar, you are in the right place!

Let’s talk about your marketing budget. Specifically – how to determine what percentage of your overall budget you should allocate to marketing your business.

In order to begin, it is imperative to have an accurate picture of your gross revenue or estimated revenue before determining your marketing spend.  Discuss and review with your CFO, finance department, or accountant for a thorough understanding of your gross revenue.

That was the easy part! Figuring the remainder of this equation now becomes a series of “it depends” statements. The first of those statements being, your marketing budget depends on the age of your business:

  • If your business is less than five years old, a general rule of thumb is 12-20% of gross revenue be dedicated to marketing.

That seems like a lot and can be intimidating to many first-time entrepreneurs and new business owners.  But, what if you think about it this way: You have this fantastic new product or service – a significant game-changer in your industry. But, no one is buying. Why? Well, probably because they have no idea it or your company exist! As Henry Ford once said, “Stopping advertising to save money is like stopping your watch to save time.”

Word-of-mouth only does so much, and new businesses must maximize their exposure to set themselves apart from competitors and take their company to the next level. Marketing should be a significant focus when beginning; not only does it bring in new customers and leads, but it establishes your brand in the industry.

Once your brand is known, you can consider lowering your marketing budget. Established brands or well-known companies, on average, allocate 7-12% of gross revenues to marketing efforts.

Commonly known brands don’t need to promote themselves as heavily. They have loyal and, oftentimes, life-long customers who aren’t going anywhere. While they still need to advertise, they certainly don’t need to invest as many resources as a new company vying for its share of the market.

A February 2020 Pre-COVID CMO (Chief Marketing Officer) Survey determined an anticipated 8.6% of revenue for the average marketing spend, with

  • B2C product companies devoting 11.9% of revenue to marketing, and
  • B2B service companies spending only 4.8% of revenue.

You have already caught this – it was all pre-Pandemic. And we know that the Pandemic changed everything for businesses in a heartbeat.

In June 2020, at the peak of the Pandemic, the same CMO’s were again surveyed. They then reported that average marketing spend had increased to a whopping 11.4%.

Another “it depends” statement to factor into your budget:  Your marketing spend depends upon your industry and the effects that COVID has had on it and your community…

  • Consumer services – almost 19%
  • Education & Financial service – 9%
  • Manufacturing is just under 3%

It is challenging when setting your marketing budget, as there is not a one-size-fits-all solution – not all companies include the same criteria in their marketing budget. While some companies include any marketing and even sales-related expenses, others would categorize some of those expenses separately as a part of their total budget.

Your target audience and overall brand establishment also play a significant role in this allocation. If you want to learn more about identifying your most valuable audience, tune in to episode #5 of our Down & Digi Video Series or read our blog post,  Who’s Your Target Audience ? (It’s Not Everyone).

While there is no magic number when setting a marketing budget, these percentages are a great starting point when determining your marketing strategies. As a resource for you, we have added a marketing budget calculator to our website. Experiment with it and determine the budget that is right for your business.  As always, our digital marketing experts are available to help you or answer any questions you may have when figuring your marketing budget. (updated 2021 for COVID)