When it comes to working out how much money you should be spending on your marketing activities, you could ask, how long is a piece of string? It can be difficult to simply pull a number out of the air and for that figure to be right.
But generally speaking most successful businesses use a few strategies to help them work out how much money to dedicate to their marketing.
Let’s take a look at some ways to decide on a workable budget to meet your needs. Firstly though, we should define what we mean by marketing budget – what exactly do we want to cover or include in the budget.
Your marketing budget should cover all costs needed to market your product or service, so that includes things like print advertising, promotions, demonstrations, exhibitions, public relations, social media, free product sampling or giveaways and costs to cover Google AdWords etc.
1. Use the 5% rule
There is a general rule-of-thumb in the marketing world that you should aim at spending between 2-5% of your sales revenue on marketing. This 5% rule has been based on years of previous marketing experience and feedback from successful companies.
While at first glance this 5% rule doesn’t seem to be very generous, but when you break it down it is quite reasonable. This is because it should apply to most years, but not every year. Roughly 5% of your sales revenue should cover most of your regular ongoing marketing activities.
There may be times when you will need to spend more, such as in the early days of your company foundation when you need to invest in your day-to-day marketing activities.
Extra expenses will come from the initial set up your company website, buying software such as a good CRM package etc. and then you will need to spend a little more on upgrading your website every three to five years as technology moves on.
Creating your basic marketing foundation needs to be considered when first setting up as this includes:
- Creating your company brand
- Devising your content marketing strategy
- Website design and development
- Social media marketing
2. Consider marketing budgets by industry
Graph: marketing budgets by industry
3. Consider marketing expenses by industry
Graph: marketing expenses by industry
4. Look at key marketing budget statistics
In the ‘service consulting’ industry, the average marketing spend is 12% of turnover (source)
69% of successful B2B marketers have a documented content strategy (source)
The content marketing industry will be worth $412 billion by 2021 (source)
9 out of 10 B2B buyers say online content has a moderate to major effect on purchasing decisions (source)
84% of CEOs and VPs use social media to make purchasing decisions (source)
80% of business decision-makers prefer to get company information from a series of articles versus an advertisement (source)
78% of companies have a team of one-to-three content specialists (source)
77% of companies say they have a content marketing strategy (source)
Companies spend 46% of their marketing budget on content creation (source)
Content marketing is a long-term game. Almost every campaign begins with a negative ROI overall, which should improve over time (source)
There are many benefits that content marketing offers that are hard to quantify numerically. Brand perception is one of these advantages (source)
5. Consider your marketing budget ROI
The old saying goes: You need to spend money to make money. However, while most companies will spend around 5% of their total revenue on their day to day marketing to maintain their position, they will up that amount to around 10% when they aim to grow and establish a greater market share of their niche.
A business should budget according to its tenure in the marketplace. So if your company sells multiple products or services, then you should allocate your advertising budget differently based on the status of each product or service you offer.
If you have well-established products or services, then you may only need to spend around 1% of their total sales on marketing them. But when launching a new product or service, you may be interested to know that other companies will spend 50% or more on marketing their new offerings until they become established.
6. Pay special attention to mobile marketing
While you need to first build a strong marketing foundation as mentioned above, don’t forget that as time moves on your focus must be targeted towards the ever-growing mobile marketplace.
You should allocate a large portion of your marketing budget towards mobile marketing and especially towards your best-performing channels. This could be your company website, blog, SMS messaging or social media accounts.
7. Decide on your marketing channels
It is unlikely that every marketing channel you have will be right for your marketing efforts, but for those that are effective, it can make a massive difference for your company awareness, positive customer experience and satisfaction, and therefore sales.
With mobile traffic now overtaking desktop traffic, nearly all digital growth is now coming from mobile users. But this doesn’t mean you need to increase your marketing budget to cover more bases or abandon your efforts for your desk-bound devices.
It should be about striking a good balance between both channels and making your business more mobile-friendly. According to the Google Shopper Marketing Council, mobile shoppers spend more money, but 84% also use their smartphones while in-store to make informed purchasing decisions.
It can help you greatly to use services like Google Analytics to show you how your web traffic is divided between desktop and mobile. You can even get free plugins for your WordPress site, if you use one, to tell you this for free.
So, how much should you spend on marketing?
While there is no one-size-fits-all answer to this, you can simply use the 5% rule as mentioned above as a broad blanket approach to cover your marketing needs to begin with, especially if you are starting from scratch, and then dig a little deeper to plan your budget as you move forward.
The way to calculate your 5% marketing budget is as follows:
- To maintain current brand awareness and visibility = total revenue x 5%
- To grow your market share = total revenue x 10%
However, the above calculation is a basic rule-of-thumb. You may need to adjust this up or down according to your business overheads and available funds left after expenses.
To dig a little deeper to form an accurate marketing budget, you should analyze the way your customers engage with you. Is this through a mobile-ready website, app, social media or mobile advertising etc.
Identify your most profitable marketing channels and then dedicate more of your marketing budget towards which channels are working the best for you.
Constantly monitor your customer analytics. Look for weaknesses and remedy them. This could be by dedicating extra funding to fixing them or by restructuring your marketing funnel for example. If you spot any weaknesses you should limit your everyday marketing activities until you have resolved your issues.
Never let yourself become complacent. Be prepared to consistently test, rinse, repeat and optimize your results. By doing this you can keep your marketing budget under control and create a better ROI for your spending.
Marketing budgets FAQ
The general rule of thumb is to spend 5% of your business turnover on marketing. But this varies significantly by sector and by the marketing strategy set out by the company. Some businesses spend more than 20% of their revenue on marketing if they are trying to make fast entry into their market.
How much should a small business spend on marketing?
This depends on how small the business is, and the resource they have available. For example one person starting their first business from home might opt to do their marketing themselves via social media, and spend nothing. Another small business might have secured venture capital funding and be spending millions of pounds.
Why spend money on marketing?
When marketing is done effectively, the return on investment is proven an undeniable. As long as you get your marketing right, the resulting sales from new customers will be higher than what you spent. This is why marketing usually forms a key aspect of a business plan: it’s essential for business growth.
How much should a startup company spend on marketing?
Usually around 5% of sales turnover, but up to 20% or more of revenue for ambitious startups that are focused on high growth and fast market entry.
How do businesses evaluate their marketing spend?
In very basic terms, a business can evaluate the effectiveness of their marketing based on a simple calculation, to work out how much sales revenue has been generated as a percentage of what was spent on marketing. As long as the new revenue is higher than the spend, you could say that the marketing was effective. But there are levels of success, as it’s usually possible to improve marketing ROI by refining the strategy and execution.
How to calculate marketing spend?
Marketing spend is most commonly calculated as a percentage of sales revenue. An effective business plan should indicate how sales income will be distributed between things like operations, sales, marketing, and product development.
What is a marketing budget?
A marketing budget is the money set aside to be spent on marketing for a company. Marketing usually involves a number of channels including social media marketing, PPC advertising, email marketing, and sponorships. Sometimes it also includes more traditional channels such as TV or radio advertisements.
What is included in a marketing budget?
A marketing budget usually runs for 12-24 months and gives details of the channels to be used, and the corresponding spend on marketing campaigns. This is usually tied to a forecast of sales revenue.
What is a typical marketing budget?
There’s no set figure in pounds or dollars for this, because it depends drastically on the size of the company. For one business, spending $1,000 on marketing over 12 months might seem like a huge figure. For another business, it might be common to spend more than $1,000 per day.
What is a typical marketing budget percentage?
5%. There’s no hard and fast rule here, but traditionally a good place for a company to begin is to spent around 5% of their sales income on marketing.
How much does social media marketing cost?
There are usually two main costs for social media marketing: the cost of the advertisements or content creation for the campaigns, and the fee for hiring a social media management company to plan and execute the campaigns for you.
How much does a marketing campaign cost?
How long is a piece of string? The scale and format of marketing campaigns can vary significantly, and might start at less than $100 for a one-person business, to tens or hundreds of thousands of pounds for a bigger business. This is analogous to buying a car: you might get something simple and old for less than $1,000, or you might spend six figures on a high end sports car.
How much does email marketing cost?
If you use a product such as Mailchimp for your email marketing, the cost will depend on the number of subscribers that you need to store data for. Mailchimp has a free package to get you started if your list isn’t too big.
How much does a marketing team cost?
You can recruit a marketing team internally within your business, and the ongoing costs would be the salaries, or you can commission an external marketing company to provide this service as your marketing partner. This second option is often popular because there’s less commitment (you can fire or change your marketing agency easily), and it also doesn’t require you to develop a new specialist skillset within your business.
How much does a marketing consultant cost?
Hiring a marketing consultant can vary from $100 a day to more than $1500 a day, depending on the scope of the work and the expertise of the consultant. See our guide to marketing consultants here.
How much does influencer marketing cost?
Anything from $500 to more than $10,000. There are a number of variables when hiring an influencer for marketing: whether you hire them directly or via an agent; the amount of work you’re asking them to do; the size of the following that the influencer has; and whether you’re asking them to commit to any kind of exclusivity with your business.
How much does marketing cost?
Marketing costs whatever you are able and willing to spend! If you’re a one-man-band starting your first small business from home, you might want to begin by doing things like social media marketing for free by yourself. At the other end of the spectrum, large corporations spend millions of dollars a year on marketing.