What Percentage of Revenue Should Be Spent on Marketing?

What Percentage of Revenue Should Be Spent on Marketing? blog image

Are you wondering what amount of your business budget should you allocate to marketing?

One of the perennial questions that plague entrepreneurs is the allocation of resources, particularly when it comes to marketing budgets.

This blog post will help you understand what percentage of revenue should be spent on marketing to find the optimal balance between investment and return on investment.

Takeaways
  • Determine the average percentage of revenue allocated to marketing within your specific industry to establish a baseline for budgeting
  • Consider your company’s growth stage—startups may invest a higher percentage to build awareness, while established businesses might allocate a smaller proportion for maintaining market share
  • Analyze the level of competition in your industry— more competitive markets require a higher marketing investment to capture market share
  • Align your marketing budget with specific business objectives and ensure the allocated percentage supports the achievement of such goals
  • Regularly reassess and adjust your marketing budget based on performance metrics, market trends, and evolving business needs

How Much Revenue Should Be Spent on Marketing?

According to the U.S. Small Business Administration (SBA), small businesses with revenues under $5 million should allocate 7-8% of their revenues to marketing.

Larger companies, with revenues between $5 million and $100 million, might allocate 6-7% of their revenues to marketing, according to the SBA.

However, In the past 12 years, businesses have increased the portion of their revenue dedicated to marketing, averaging at 8.7% of overall company revenue in 2022.

This reflects a growth of over 5% since 2011.

Across different sectors, B2B product industries typically allocate around 7.8% of their revenue to marketing, similar to B2C services (6.5%) and B2B services (5.9%).

Notably, B2C product industries allocate the highest percentage, dedicating 15.1% of their total revenue to marketing efforts.

Even in the realm of small businesses, there’s a noteworthy commitment to marketing. According to a survey involving 85 small business owners and marketers, 52% reported a monthly marketing expenditure ranging from $5,000 to $15,000.

what is the size of your small business monthly marketing budget

Source

It’s evident that decisions regarding marketing budget allocation are predominantly influenced by the specific dynamics within each industry.

Why You Need a Marketing Budget

In the dynamic world of business, having a well-defined marketing budget is not just a best practice; it’s a strategic necessity.

Here’s why you need a marketing budget for your business:

  • Strategic Planning: A marketing budget serves as the roadmap for your marketing strategy, outlining the resources available for various initiatives.
  • Resource Allocation: Helps in allocating funds efficiently across different channels, ensuring a balanced and comprehensive approach to reaching your target audience.
  • Financial Accountability: Sets clear financial parameters, promoting accountability and responsible spending within the marketing department.
  • Risk Management: Acts as a risk mitigation tool by preventing overspending or haphazard investments in marketing campaigns that may not yield the desired results.
  • Measuring Success: Provides a benchmark for success by establishing key performance indicators (KPIs) that can be tracked and evaluated over time.
  • Prioritization of Initiatives: Helps prioritize marketing initiatives based on their impact and contribution to overall business objectives.
  • Adaptability: Allows for flexibility in responding to market changes and emerging opportunities, ensuring your marketing strategy remains agile and adaptive.
  • Communication Tool: Serves as a communication tool within the organization, aligning various departments with the marketing goals and fostering a shared understanding of resource allocation.
  • Competitive Edge: Provides a competitive edge by allowing businesses to stay ahead of industry trends, invest in emerging channels, and capitalize on new marketing technologies.

Marketing Campaign Cost Breakdown

Understanding the various components that make up a marketing budget is crucial for effective resource allocation and maximizing return on investment.

Here’s a breakdown of key components along with average spending ranges:

  • Digital Advertising (20-30%): Utilizing paid channels such as Google Ads, Facebook Ads, and Display Ads to target specific audiences and drive online visibility.
  • Content Marketing (15-25%): Creating valuable, relevant content like blog posts, videos, and infographics to engage and educate the target audience.
  • Social Media Marketing (10-20%): Investing in sponsored posts and collaborations with influencers on platforms like Instagram, Twitter, and LinkedIn.
  • Email Marketing (10-15%): Crafting and deploying email campaigns, newsletters, and automated sequences to nurture leads and maintain customer engagement.
  • Events and Sponsorships (10-15%): Participating in industry events, trade shows, and local sponsorships to build brand presence and network with potential clients.
  • Public Relations (5-10%): Engaging in activities like press releases, media outreach, and interviews to enhance brand reputation and secure media coverage.
  • Marketing Technology (5-10%): Investing in customer relationship management (CRM) software, analytics tools, and marketing automation platforms to streamline operations.
  • Print and Offline Ads (5-10%): Allocating funds for traditional marketing methods such as brochures, direct mail, and print advertisements.
  • Market Research (2-5%): Conducting surveys, focus groups, and competitive analysis to gather insights and inform strategic decision-making.
  • Miscellaneous Expenses (2-5%): Setting aside a contingency budget for unforeseen costs or emerging opportunities that may arise during the campaign.

Here is a summary table of a typical marketing campaign budget:

ComponentAverage Spend RangeExamples
1. Digital Advertising20-30% of the overall budgetGoogle Ads, Facebook Ads, Display Ads
2. Content Marketing15-25%Blog posts, videos, infographics
3. Social Media Marketing10-20%Sponsored posts, influencer collaborations
4. Email Marketing10-15%Campaigns, newsletters, automation
5. Events and Sponsorships10-15%Conferences, trade shows, local events
6. Public Relations5-10%Press releases, media outreach, interviews
7. Marketing Technology5-10%CRM software, analytics tools, automation
8. Print and Offline Ads5-10%Brochures, direct mail, print advertisements
9. Market Research2-5%Surveys, focus groups, competitive analysis
10. Miscellaneous Expenses2-5%Contingency, unforeseen costs

Marketing Spend as a Percentage of Revenue by Industry

Businesses should assess their unique circumstances, target audience, and business objectives when determining their marketing budget allocation.

Here are the specific marketing spend by industry as a percentage of all revenue:

IndustryAverage Percentage of Revenue Spent on Marketing
E-commerce/Retail14%
Technology/Software21%
Healthcare/Pharmaceuticals18%
Finance, Insurance, Banking, Real Estate8%
Consumer Goods9%
Transportation6%
Communications/Media10%
Consumer services6%
Education3%
Manufacturing13%
Consulting21%

How Much Should a Company Spend on Marketing Based on Its Size?

How Much Should a Company Spend on Marketing Based on Its Size

Let’s explore how much startups, small and medium businesses, and large companies should spend on marketing according to the latest statistics:

Average Marketing Spend for Startups

Startups typically face resource constraints but recognize the importance of marketing in establishing their brand.

While specific figures can vary, startups should allocate a significant portion of their budget to marketing. This can range from 10% to 20% of their overall budget in their early stages of development.

Average Marketing Budget for Small Businesses

Small businesses, considered the backbone of many economies, are advised by the U.S. Small Business Administration (SBA) to allocate approximately 7-8% of their revenues to marketing.

This allocation of the small business marketing budget reflects a balance between the need for effective promotion and the limited financial resources.

These businesses should prioritize inexpensive marketing ideas due to limited resources.

Average Marketing Budgets for Medium-Sized Businesses

Medium-sized businesses, with revenues ranging from $5 million to $100 million, may adopt a more nuanced approach to marketing budget allocation.

According to Jenkinson and Associates Marketing, these businesses should allocate around 7-8% of their revenues to marketing, recognizing the need for strategic promotion to drive growth and maintain competitiveness.

Average Marketing Budget for Large Companies

Large companies, owing to their expansive operations and diverse portfolios, often exhibit greater variability in marketing budgets.

On average, these companies may allocate anywhere from 5% to 15% of their revenues to marketing.

This flexibility allows them to adapt to industry demands, invest in extensive marketing campaigns, and leverage their brand recognition for sustained market presence.

How to Determine How Much You Should Spend On Marketing

Establishing an effective marketing budget is pivotal for the success of any business.

Here is a step-by-step guide on how to determine how much you should spend on marketing your business.:

Step 1: Research Your Industry

Start by conducting thorough research on industry benchmarks to understand the average percentage of revenue that companies in your sector allocate to marketing.

Analyze the marketing strategies of competitors and industry leaders to gain insights into their spending patterns and successful tactics.

Consider the unique characteristics of your industry, such as seasonality and market trends, which can influence marketing budget decisions.

Step 2: Set Clear Goals

Clearly define your marketing objectives. Whether it’s increasing brand awareness, driving sales, or expanding market share, specific goals will guide your budget allocation.

Ensure your goals are SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) to facilitate accurate tracking and assessment of your marketing efforts.

Step 3: Consider All Your Potential Costs

The potential marketing costs you need to consider when allocating a budget include:

  • Website: Allocate funds for website development, maintenance, and optimization to ensure a strong online presence. Consider costs for hosting, domain registration, and any necessary website upgrades.
  • Social Media: Plan for social media marketing expenses, including paid advertising, content creation, and engagement strategies. Account for tools or software that facilitate social media management and analytics.
  • Online Advertising: Budget for online advertising platforms such as Google Ads, Facebook Ads, and other digital marketing channels. Determine the type and scope of your online advertising campaigns to estimate costs accurately.
  • Traditional Media: If applicable, allocate funds for traditional media outlets like television, radio, print, and outdoor advertising. Negotiate rates and consider the reach and relevance of each traditional media channel.
  • E-newsletters: Factor in costs associated with creating and distributing e-newsletters, including email marketing software expenses.
  • Video: Include costs related to video production, editing, and promotion. Determine whether in-house production or outsourcing is more cost-effective for your video marketing strategy.
  • Training: Invest in staff training to keep your marketing team updated on the latest trends, tools, and strategies.

Step 4: Keep Track of Costs and Adjust Regularly

Implement a robust system to track all marketing expenses in real-time. Utilize digital marketing  tools or software to maintain a comprehensive record of costs.

Regularly evaluate the performance of your marketing initiatives against set goals and adjust the budget as needed. Also, be agile in response to market changes, emerging opportunities, and shifts in consumer behavior.

How to Make the Most Out of Your Marketing Budget

Effectively managing and maximizing your marketing budget requires strategic decisions and a focus on efficiency.

Here are some tips on how to make the most out of your marketing budget:

Hire a Marketing Agency Where Needed

  • Strategic Expertise: Engage a marketing agency for strategic planning and execution. Agencies often bring specialized skills and industry knowledge that may be more cost-effective than hiring full-time specialists.
  • Project-Based Work: Utilize agencies for specific projects or campaigns rather than maintaining continuous contracts. This allows flexibility and cost control.
  • Campaign Optimization: Leverage agency expertise to optimize digital advertising campaigns, ensuring efficient spending and improved results.

Invest in Content Repurposing and Updating

  • Extend Content Lifespan: Repurpose existing high-performing content across various channels. Turn blog posts into infographics, podcasts, or video content to reach diverse audiences.
  • Regular Content Audits: Conduct content audits to identify outdated or underperforming materials. Updating and republishing relevant content can enhance SEO and audience engagement without the need for substantial new investments.
  • Leverage User-Generated Content: Encourage user-generated content and testimonials to supplement your marketing efforts without significant costs.

Understand Your Customer Journey

  • Customer Personas: Develop detailed customer personas to understand your audience’s needs, behaviors, and preferences. Tailor marketing efforts to each stage of the customer journey.
  • Attribution Modeling: Implement attribution models to analyze the contribution of each marketing channel throughout the customer journey. This enables more accurate budget allocation based on the channels that drive conversions.
  • Customer Feedback: Collect and analyze customer feedback to continually refine your marketing strategy. Understanding customer sentiment and pain points helps in crafting more targeted and effective campaigns.

Get an In-House Marketing Team

  • Consistent Branding: An in-house team ensures consistent branding and messaging. Internal teams are closely aligned with company values, making it easier to maintain a cohesive brand identity.
  • Quick Adaptation: In-house teams can respond rapidly to market changes and emerging opportunities. This agility is crucial in the fast-paced world of marketing.
  • Cost Control: While external expertise is valuable, having a core team in-house can provide cost savings for routine tasks and day-to-day operations.

Constantly Re-Evaluate Your Marketing Strategy

  • Regular Performance Analysis: Regularly analyze the performance of marketing channels, campaigns, and strategies against established KPIs. Identify what is working well and what needs adjustment.
  • Market Trends: Stay abreast of industry trends and evolving consumer behaviors. Adjust your strategy to align with changing market dynamics and ensure relevance.
  • Competitor Analysis: Monitor competitor activities and adapt your strategy accordingly. Identify gaps in the market or areas where you can differentiate your brand.

De-Prioritize Underperforming Channels

  • Data-Driven Decision Making: Rely on data to identify underperforming channels. If a particular marketing channel consistently delivers a low return on investment, consider reallocating resources to more effective channels.
  • A/B Testing: Conduct A/B testing to compare the performance of different variations of your marketing efforts. This allows you to optimize campaigns and focus resources on the most successful elements.
  • Flexibility: Be willing to pivot and reallocate budget based on performance data. The ability to quickly adjust strategies and redistribute resources is key to optimizing your marketing budget.

Final Word

Finding the right percentage of revenue for your marketing budget is a nuanced process, influenced by factors like business size and industry.

Whether you’re a startup, a small business, or a large enterprise, it’s important to align your marketing budget with industry standards.

As you navigate these decisions,  ensure your online presence complements your marketing efforts by building your business website using the best website builders on the internet.

Next Steps: What Now?

Learn More About Marketing

Frequently Asked Questions

What is the ratio of marketing to revenue?

The ratio of marketing to revenue varies across industries and businesses. It is typically expressed as a percentage and reflects the proportion of a company’s revenue that is allocated to marketing activities. The specific ratio depends on factors such as industry standards, business goals, and the competitive landscape.

What is the average percentage for marketing?

The average percentage of revenue allocated to marketing varies by industry. A common benchmark is between 5% and 15% of total revenue, but this can fluctuate based on factors like the industry’s competitiveness, business size, and growth stage. High-growth industries or companies may invest a larger percentage to capture market share, while more established businesses may allocate a smaller percentage.

How much should you spend on marketing as a startup?

For startups, determining the marketing budget involves balancing the need for visibility and customer acquisition with limited resources. A common recommendation is allocating 10-20% of the startup’s overall budget to marketing in the early stages. However, the allocation may vary based on specific goals, growth targets, and market conditions.

What percentage of revenue should be spent on sales and marketing?

The percentage of revenue that should be spent on sales and marketing collectively depends on various factors. In general, businesses may allocate 15-30% of total revenue to sales and marketing combined. The actual percentage can vary based on industry norms, the sales cycle length, and the competitive landscape.

Sonja Vitas
Edited By:
Sonja Vitas
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