If you want to expand your customer base and are in more of a maintenance marketing mode, a solid monthly marketing budget is the best way to go. Those who earn more can increase their budget by 10 to 12 percent as their business grows tend to see the best long term success. While every business is different in the sense of their overall budget, price of product/service, and how competitive your spaces all factor into how much you should invest into marketing. Just remember the key word is “invest” not “budget”.
Marketing Investing By Percent
There is a general rule of thumb in the marketing world that you should spend between 20% and 40% of your sales revenues on marketing if you are just starting off. At first glance, this may not seem generous, but if you break it down, it is actually quite reasonable. It is based on years of marketing experience and feedback from successful companies. Note that the 7% to 8% rule assumes that your business has a 10 to 12% turnover margin before spending is included in your marketing budget. If your business margin is below this, you should consider lowering your overall margin or spending extra on marketing.
This is a tough call for any entrepreneur, but you should not base your marketing budget solely on that and leave your other business expenses covered. Your marketing budget should cover all the costs required to market your product or service, including things like print ads, promotions, demonstrations, exhibitions, public relations, social media, free product samples and giveaways and costs covered by Google AdWords.
Check Out This Graphic Of Percentage Of Marketing By Industry
The Gartner CMO Spending Survey found that 26% of all marketing budgets are spent on paid media and digital media represented 16% of total marketing budgets when broken down by category. Digital marketing budgets averaged 60% of the total marketing budget in 2019, and this figure is expected to rise further.
Determining the right marketing budget can be cumbersome for companies. Maintaining a healthy balance between revenues and costs is particularly important for start-ups and small businesses to invest resources in the market in order to grow. Here are some great marketing analytics companies.
Marketing Budget by Company Size
The size of a company's budget varies depending on its market position, whether it has multiple products and how it distributes its marketing expenditures based on the status of the product market, its industry and other considerations. For example, industrial and commercial companies typically spend less than 1% of their net sales on the sales and marketing of established products while many consumer-goods companies spend 50% or more of their net sales on launching new products. Marketing spending also depends on how much you want to grow.
Companies in highly competitive industries such as retail, consumer goods and pharmaceuticals typically spend 20 to 50 percent of their sales on marketing certain offerings. Marketing resources are allocated and driven by the nature of the business, the competitive market and the behavior of targeted customers by the purchasing funnel.
Where To Spend This Marketing Budget
This is a tough call for any entrepreneur, but you should not base your marketing budget solely on that and leave your other business expenses covered. Your marketing budget should cover all the costs required to market your product or service, including things like print ads, promotions, demonstrations, exhibitions, public relations, social media, free product samples and giveaways and costs covered by Google AdWords.
The 6 Best Places to Advertise Online
The US Small Business Administration recommends that if you make less than $5 million in sales per year and your net profit margin before costs is in the range of 10 to 12 percent, you spend 7 to 8 percent of your gross revenue on marketing and advertising. That means a company would have an ideal marketing budget of $60,000 to $120,000 per quarter, or $240,000 to $480,000 per year. The percentage of spending varies, but the SBA recommends small businesses to spend 15-30 percent of their gross revenues on marketing or advertising.
Your marketing budget must include both traditional approaches and emerging platforms and tactics. In 2017, companies spent less than 10% of their 2017 marketing budget on social media, but plan to spend 60% by 2023.
Tactics & Calculating Marketing Spend
Once you reach your ROI target and annual revenue target, calculate your marketing expenditure. Over time, you will recognize the impact of your marketing budget on your revenue and adjust it as needed. If you aren't sure, try to create a marketing budget for small businesses so that you can develop ideas for productive ways to market your small business without destroying the bank.
Predicting what tactics will help you achieve your customer acquisition goal | Use the by-products of your calculations to make an informed decision about which marketing strategies will help you achieve your goals.
One of the difficulties in making general budgetary recommendations is that not all companies are uniform in how they include their marketing budget. Some companies include marketing, sales and related expenses, while others classify them as part of their overall budget. A chart from a CMO survey last year illustrates this inconsistency by showing what marketing spending it includes.
Constant Contact, an email marketing company, spent 38 percent of its 2014 revenue of $331 million which led to 16 percent growth in the following year. Salesforce and Tableau both spent 53 percent of their revenue on sales and marketing.
The Conclusion
While it is always solely up to the business owner on what they should invest into their marketing strategy, we hope this gave you some good insight on what some of the "big" time companies are spending. This will always vary from startup to established business, industry, and many more factors. If you are a startup you are going to want to avoid the percentage marketing strategy as the focus should be on getting people to know your brand, this means heftier marketing budgets up front that can slowly decline into the percentage rules as you grow. Just know that you should have a dedicated marketing budget EVERY MONTH to continue to allow your business to grow. If you are still wondering what a good marketing budget for your business should be, feel free to reach out to The Social Sharks and we would be happy to recommend a good spend on your digital marketing campaigns.
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