How Much Should You Spend On Marketing?

As much as you need, to grow your business, at the rate you want.
It’s pretty much as simple as that. But that’s not the answer you’re looking for. 

You’re looking for a percentage. A way to determine how much to carve out for the marketing department every year at budget time. OK. We’ll give you a few perspectives on that. Before we do, however, I’m sure you’ve noticed we’re a marketing company. So you could easily imagine we’re a little biased in determining how much should you spend on marketing.

On the other hand, seeing as we’re a marketing company, we might have a pretty good idea of how much successful businesses really do spend on their marketing.  

And if we focused our time convincing people to part with cash that didn’t get a return, then we wouldn’t still be in business. Now hold that thought, we’ll come back to it. 


So How Much Should We Spend On Marketing?

Once again in order to be impartial, we’ve sourced a variety of opinions on this for you. 
Presented here without prejudice, so you can make up your own mind. 

The CMO Survey  

American based, annual survey, tracked marketing budget as a percentage of total costs (amongst various other things) and saw a spread of 8 to 12% between 2011 – 2018. As a percentage of revenue over a similar period, it was 7 to 12%. 

Legal Zoom  

US Law firm that’s helped over 2 million businesses. Puts the average marketing spend of small businesses at 9 to 12% of annual budget. 

The Manifest  

An online business community that collects and verifies data to help your business grow.
Determines that ‘a good rule of thumb for businesses with less than $5 Million in revenue is to spend 7-8% of that on marketing.’ 

 

So you can use all of that as a ballpark, but it also depends on what stage your business is at. 


How Much You Should Spend On Marketing Depends On What Stage Your Business Is At

If You’re A Start-Up 

Then you’re going to have to get your name out there somehow, and although there’s an awful lot you can do on social media for very little cost, if you want to accelerate your launch, you’ll need to spend some money or get extremely lucky. You won’t have much revenue, but overinvestment will deliver it quicker. It’s a fine balance. 

Results from the CMO survey reflect this, showing smaller businesses tend to spend at a higher rate than larger, more established companies. 

If You’re In A Growth Stage

Then you’re best looking at what you’ve spent over the years, how much growth that has achieved, and increasing according to the amount of growth you’d like.  

Now it’s not always as simple as that, and there’s always room to get smarter with your spending since by now you should have a pretty good idea of what sort of marketing initiatives show the best return (you have been collecting and analysing your marketing performance data right?). 

Marketing expenses vs investment


So, How Much Should You Spend On Marketing? Depends On What You’re Getting In Return

Told you we’d come back to this, and it’s a key element for every expense in a business.
Do we really need to be doing this? Is there a better way? What’s the ROI..?  

For example, if you’re spending $1 for every click with Google AdWords, you convert one in 20 and the profit margin is $100 (after the spend) then you’re in pretty good territory. You’re getting $5 back for $1 spent.  

Would you look at your spend and decide to put a lid at 12% of annual revenue?
Or would you just ramp it up until you couldn’t cater to the demand? Exactly. You’d go for it.
So when you’re forecasting and determining how much should you spend on marketing, remember to be flexible, and sometimes just go with the flow. 

Etsy earns $1600 in sales for every dollar spent on search marketing, for example, so you can imagine they pour their cash into it with glee. That’s when marketing is really working. 


So, How Much Should You Spend On Marketing? Depends What Kind Of Business You’re In

If you’re in the B2C world you probably need a lot of low-value sales to keep it all going so you’ll need to spend to get your message in front of a big audience. While in B2B you can get away with a lot less, of a much higher value. This is in general, of course, however, if we look at the companies that spend the most on advertising, it gives you an idea.

Leading advertisers worldwide in 2020

The top five are all consumer goods, there are four car manufacturers and a drug company in the top ten. No B2B in sight, although in B2B you’ve probably got the cost of more salespeople instead. 


So, How Much Should You Spend On Marketing? Don’t Be Afraid To Ask Around

If you’re not sure that you’re spending enough, or too much, then don’t be afraid to ask.  

Are there any associations that might have some information on that? Have you got friends in the industry you can talk to? Even ask your accountant, perhaps, what kind of percentage he sees other businesses spending on their marketing. 

Is there any way you can find out what your competitors are spending, any current employees that used to work elsewhere? If you get some answers, don’t forget to benchmark against performance too. A competitor who doesn’t spend very much, but is slowly slipping down the ranks is maybe more of a warning, than an example of what to do! 


So, How Much Should You Spend On Marketing? It’s Entirely Up To You

It really does come down to how much do you want to grow, at this particular stage of your business. Doing anything apart from maintaining slow, steady growth, is going to need a bit of a boost on what you’ve spent in the past. 

But if you’re happy with that, or you can’t bring yourself to spend any more, chances are you haven’t got a handle on your marketing return and you should get smarter with tracking marketing performance so you can invest with more confidence. 

And if you need a hand with that, we can certainly help. We’ve been making the most of marketing budgets for decades now, across a wide range of industries, and working smarter is the only way we know how to do it. 

Read more about Inside-OutHouse services here. Inside-Outhouse was created by specialist SME marketing consultancy Permission. Read more about Permission here.