How Much of Your Business Budget Should Go to Marketing?

Charles Dimov, MBA (MASc) Audrey Nesbitt Joe Fitzpatrick Oliver JP Osborne Stephanie Wetterwald Tyrone Matheson Please share!

Money, money money! If you want to be outrageously successful in business, it is wise to put some money into marketing, but how much? Deciding the right amount of budget to allocate to marketing is crucial for businesses aiming for growth, sustainability, or even just to hold their market position. The appropriate percentage varies widely depending on several factors, including industry norms, business size, its stage of growth, and the specific goals it aims to achieve. Let's take a look at some key considerations and research findings to guide businesses in making informed decisions about their marketing spend.

Industry Benchmarks

Different industries have different norms when it comes to marketing spend as a percentage of their overall budget. For example, consumer goods companies traditionally invest a higher proportion of their budget in marketing efforts compared to businesses in the B2B sector. It's essential for businesses to understand the standards within their industry to make competitive and strategic budgeting decisions.

Revenue-Based Marketing Budget

A common guideline suggests businesses should allocate 5% to 10% of their revenue on marketing to maintain their current market position. For those looking to grow or capture more market share, the recommendation increases to 10% to 20% of revenue. Startups and companies in early growth stages may find themselves allocating even higher percentages to establish their brand and market presence.

Small Business Administration Guidance

The U.S. Small Business Administration offers a benchmark for small businesses, recommending an allocation of 7-8% of gross revenue to marketing. This advice is predicated on businesses having a net profit margin—after all expenses—of 10% to 12%, and is aimed at companies with revenues under $5 million.

Digital Marketing Considerations

With the rise of digital marketing, which often offers more cost-effective solutions than traditional marketing methods, the allocation between digital and traditional channels has become a critical consideration. Digital marketing's efficiency and ability to precisely target and measure the impact of campaigns can influence how far a marketing budget can stretch.

Gartner’s Annual CMO Spend Survey

For insights into current trends, Gartner's Annual CMO Spend Survey provides valuable benchmarks. For instance, the 2020 survey indicated that, on average, companies allocated 11% of their total company revenue to marketing. However, economic conditions, market changes, and industry disruptions can cause significant fluctuations in this figure.

Tailoring Your Marketing Budget

While benchmarks and guidelines offer a starting point, the optimal marketing budget for any business will depend on its unique situation. Factors such as competitive landscape, market conditions, and the effectiveness of past marketing efforts should influence budgeting decisions. Regularly monitoring the return on investment (ROI) from marketing activities allows businesses to adjust their strategies and budgets for maximum efficiency and impact.

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There really is no universal formula for determining how much money a business should invest in marketing. It requires a meticulous evaluation of industry benchmarks, revenue, the stage of business growth, and marketing efficacy. By understanding these elements and staying attuned to evolving market dynamics, businesses can effectively manage their marketing budget to support their goals for growth.

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