• How Much Should a Company Spend on Marketing?

how mucshould a company spend on marketing

When it comes to your company’s marketing efforts, every aspect should be well-considered and fully thought out—including and especially your marketing budget. We get a lot of business owners asking us “How much should a company spend on marketing?” The particulars of that number are specific to the nature of your business and the industry you’re in, but if you aren’t sure how to allocate funds, or don’t have a detailed marketing budget, this is the guide for you.

A Marketing Budget is Vital

First of all, you must accept the fact that a marketing budget is absolutely integral to any business. Whether you are an online business, a rapidly expanding one, or a small mom and pop shop, marketing is essential to increasing sales, increasing awareness, and, ultimately, building a powerful brand. How much to spend on marketing will depend on your means and business goals, but, thankfully, the advent of the Internet has brought cost-effective and free options for everyone. So regardless of the size of your wallet, promotion is well within your means, and should be utilized to its full potential.

Marketing Budget Basics

Marketing budgets vary, but in general, businesses will allocate anywhere from 5 to 10 percent of revenue toward their marketing budget. Of course, business is not just about surviving, but about growing to become a more profitable company. Therefore, the average marketing budget for companies looking to grow or expand market share should be a higher percentage, close to 10 percent, or even higher.

Of course, it’s important to keep in mind that these numbers are generic; your budget will be based on what you can realistically afford for your business and what your goals are. Companies with smaller revenue margins should allocate a percentage of their revenue to marketing based on estimates of what their competitors are spending.

Related: Marketing Without a Budget

If you think even adjusted estimates of how much should a company spend on marketing are still outside your reach, keep in mind that the average marketing budget covers a myriad of expenses, as marketing is an umbrella term. Within that percentage of allocated revenue, you’ll cover the cost of marketing staff, overhead, the cost of printing, advertising and outsourced talent, as well as public relations initiatives.

Average Marketing Budget

There are two primary ways that you can calculate your marketing budget:

Percentage of Sales

You can set aside a certain percentage of total sales or revenue for all of your marketing activities. This kind of budget is attractive because it’s simple, and easy to follow. Indeed, the majority of companies worldwide spend between 1 percent to 15 percent of total sales on marketing annually. Of course, depending on how large a company is, this number can vary widely. Also, when it comes to the marketing budget of your business, basing your budget off a sales percentage alone can result in an arbitrary allocation of funds. You could easily end up spending too much or too little and not see the results you need.

Overall, for small businesses, especially ones with small budget, creating a marketing budget based off of a percentage of sales should be a tactic approached with caution. It is a good starting point. In the end, some sort of budget is better than none at all. Many small businesses make the mistake of splashing money into random, unstructured initiatives that see no results. A budget, on the other hand, is, as the saying goes, telling your money where to go instead of wondering where it went.

Goal-Based Budgeting

Goal-based budgeting, while more effective, takes a lot more work. It’s about getting down to the nitty-gritty and pushing yourself to hash out specifics. You have to define your business’s long-term goals, and then break them down into smaller, short-term goals which are easily quantifiable. These goals will be the main components of your marketing plan.

For example, say you want to increase profits by $50,000 this year. To do so, you need to obtain 1200 new customers by the end of the year, or 120 per month. How much will it take to secure these new customers?

Think of what techniques could help you best reach out to them. Will it be through attendance at trade shows? If so, which ones? Could social media marketing help? If so, do you know enough about it to attempt it yourself, or will you have to hire a social media marketer? To establish such goals, it helps to look at example marketing plans that will work for your business. This will give an idea of how other businesses structure spending around their goals

Keep Your Budget Flexible

It’s vital to remember that your budget, like your business, should never remain static. In the words of Peter Drucker, famous management consultant, “what gets measured, gets managed.” Metrics are active nouns—that is, they are for doing, not simply recording. You should constantly check yourself and your marketing techniques. Assess them critically, even brutally, and question if they are working well or not. If something seems to not be gaining traction, see how you can make it work better. If it still isn’t seeing results, don’t continue throwing good money after bad. Toss the technique and swap it for something better.

A big part of marketing is trial and error. Marketing experts can offer valuable advice, but the success of marketing strategies depends heavily on your business and the industry you work in. Ultimately, you and your staff are the only ones who can best test marketing techniques. Weed out mercilessly and adjust your budget accordingly. Eventually, you’ll be left with a marketing budget that works for your business and effective strategies that meet your needs and contribute positively to growth.

Marketing on a Budget

Small businesses without a lot of pocket change often make the mistake of foregoing a marketing budget. In consequence, they embark on a policy of “seat-of-the-pants” marketing. They employ inconsistent and insufficiently researched strategies in order to boost sales. They may post to Facebook every couple of weeks, give Google AdWords a try, or put out a random ad. Or, worse, they don’t market at all. Marketing without a plan and budget, however, is like driving in a new country without a roadmap.

Thankfully, there are many strategies available to business of all budgets. In fact, some of the best marketing methods are completely free. If you don’t have room in your budget for marketing, check out our guide to marketing without a budget.

The Internet is a great resource for businesses with small purses. Make use of online directories, online review websites, email marketing, and social media marketing. All of these are free tools that can be used to great effect, and promoting your business is critical if you want to grow your company and your revenue. If you don’t have money to spend on a budget, don’t rely on word of mouth alone. Construct a budget out of time instead. Allocate a few hours per week to encourage online reviews, several more hours to dedicate towards social media marketing, and so on so forth.

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