Mention the two words “Marketing budget” in a meeting, and someone is bound to squirm in their seat. This is true for smaller businesses which lack experienced executives that can make correct judgement, or a sizable revenue. After all, a marketing budget is not an abstract concept, especially if you are the owner: It’s your money.
But marketing is not a spending that eats into your profit, it’s an investment that boost your sales. Without marketing, it will be hard to reach new potential customers.
Having said that, some people find what’s spent into marketing is difficult to measure, while others treat it as a silver bullet to all problems. There is no definite formula to calculate this, but there are general guidelines that you can follow to decide how much to invest into your company’s marketing.
General rule of thumb
While there is no hard rule, most marketing budget is worked out based on the company’s revenue, since your marketing is supposed to increase a company’s revenue. A Gartner survey in late 2020 reported that companies in the North America, the UK, France and Germany expected their budget to average 11% of revenue.
You can also drill into a number of factors to decide how much you want to budget.
Foothold in the market
Your company’s brand awareness in your target segment is a major factor to your marketing spending: A new company has to put more effort in order to make the public aware of what it does. You may be looking at spending up to a quarter of your revenue to catch up to existing competitions.
On the other hand, an established company may allocate a more conservative budget since you have a firm foothold on a portion of the market already. In such cases, the purpose of marketing may be to “keep the status quo” and it would not be uncommon to see a spending of only 5-10% of the revenue.
Though, if your sales have stagnated, or is in the decline, it may be worth increasing the marketing budget. Done right, that should increase your revenue. After a few months, the budget should be re-evaluated to determine if you should continue it, or cut it down.
Spending differences between economic sectors
Another way to reach an educated estimation would be to look around you: your competitors, or any businesses similar to you. You can zoom in your analysis to just the companies in your industry, or look broader at companies with the same business model as yours.
|% Budget spent on marketing||% Revenue spent on marketing|
Source: CMO Survey, February 2021
And here’s a comparison between different industries and what companies are spending for marketing.
Source: Delloitte, Wall Street Journal, 2017
These can be your starting point when determining your own company’s spending budget. However, they shouldn’t be your benchmark.
You can also base it off of your competitor’s course of actions. By observing what they spend on, you will know what it is your company is up against, and give you an idea of what is required to match their momentum and maintain or surpass the status quo.
Only when you reassure yourself that your budget is in the ballpark, can you move on to planning how and where you want to spend for marketing.
Impact of COVID-19 on marketing spending
While many companies suffered losses during the COVID-19 pandemic, their marketing budget actually did not budge by much.
“As firm budgets and revenues drop, marketing budgets rise to the highest percentage of firm budgets and revenues in the Survey’s history, at 12.6% and 11.4%, respectively.” – CMO Survey, June 2020
This reflects the importance of marketing in business operation – both to retain existing customers and maintain brand awareness.
Ultimately, how much you spend depends on your company’s goals and needs. The factors above are by no means exhaustive, they merely illustrate how you should be able to specify a budget range for marketing purposes despite everything.
Once you get that out of the way, you can start thinking of what and where the budget will be used: From tracking the various marketing channels, expected R.O.I, to deploying marketing tools and technology, you can start planning for the most effective way to reap the fruits of your investment.
But, that’s for another day.