How to Determine the Percentage of Revenue You Should Be Spending on Marketing

percentage of revenue
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What if a single number controlled your company’s success or failure?

No matter its size, a company is only successful as its marketing. However, it is difficult to determine how much to spend on marketing, especially when a company is still growing.

Fortunately, there are ways to shine a light on this particular mystery. When you’re armed with the right information, determining what percentage of revenue to spend on marketing is a no-brainer.

But, how do you determine that magic number? Lets see…

What Is the Average Percentage?

Obviously, there is not a “one size fits all” rule for how much you should spend on marketing. That’s because the amount that is “just right” for one business may not be a perfect fit for another.

While we cannot always isolate a single number, though, we can look at averages.

Businesses typically average between 6%-20% of their revenue, though some swear by the 5% rule (more on this in a minute).

One reason that these percentages fluctuate is that different industries spend different amounts on effective advertising. And individual businesses may be able to leverage existing resources more effectively to reduce their overall marketing spend.

It may take a period of trial and error for you to determine the perfect percentage of revenue to spend on marketing. Also, consider how that percentage will be distributed across a variety of marketing channels, such as (just to name a few of the more popular channels):

What’s Up With “The 5% Rule”?

Think that spending upwards of 10% of revenue on your marketing is a bit extreme? Do you lean on the more conservative 5% rule to be a bit more palatable?

Basically, the “5% of revenue” estimate is a good goal for most companies to maintain their current market status. “Maintain” is the keyword here: you’ll need to typically spend more to create an actual impact on your growth. And if you spend less, you’re at risk of losing footing to your competitors. Not the best idea in the world if you ask me…

These averages are assuming that you have a well-established company under your belt.

Newer companies must typically spend more on marketing and advertising–usually between 10% and 20% of your revenue.

While that’s a lot of money (especially for an emerging business), it’s the only way for a fledgling startup to become a genuine industry concern.

Foundation Focus

Now that you know a bit more about how much revenue to allocate to marketing, the next question is pretty obvious. How, exactly, should you be allocating your marketing budget?

In a way, your first focus should be on your marketing foundation. Most businesses do not include this foundational budget as part of their 5% to 10% estimates.

What goes into a marketing foundation? Typically, things like branding, web design, web development, and marketing strategy development.

These are all foundational because without these elements in place, your marketing efforts (no matter how robust) will not be very successful. And certain aspects of this foundation may need to be updated from time to time, further cutting into your operational budget.

The most common example is your company website. From adding a responsive design to streamlining landing pages, you’re going to need to update your website every few years so you can stay competitive within your field. 

Online-Centric

There are many different advertising channels available to your business. A common question that businesses have is how much of their budget they should allocate to digital marketing and how much they should allocate to traditional marketing.

Generally speaking, digital marketing budgets have grown in recent years. Forrester Research projects that businesses will spend an average of 45% on digital marketing by the end of 2020.

Does that mean your business should spend exactly 45%? Not necessarily. Depending on your business and location, you may still get a lot of traction from traditional advertisements.

However, that 45% estimate is a powerful indicator of which direction the wind is blowing. If your business is not already investing heavily in a digital marketing strategy, there is no time like the present to get started!

Don’t Sleep On Social

It’s easy enough to say that every company should develop a digital marketing strategy. But not all aspects of digital marketing are created equally. Fortunately, there is one arena of digital marketing that businesses of every size can benefit from: social media marketing.

The vast majority of businesses employ social media marketing of one stripe or another. This can be as simple as opening an official company social media account to engaging in paid advertising via different social platforms.

In terms of paid advertisements, it’s good to know where you should invest. For example, many consumers (most of them millennials) have jumped ship from Facebook in recent years and embraced platforms like Instagram and Twitter instead.

With its ecosystem of comments and media sharing, Youtube also occupies a quasi-social media space. The Pew Research Center recently discovered that 73% of Americans use Youtube, so it’s definitely worth allocating some of your budget to that platform as well.

Mobile Customers

Once upon a time, marketing gurus tracked mobile marketing budgets separately from standard marketing budgets. That is now a thing of the past for a simple reason: mobile marketing must be baked into your standard budget.

Consumers now primarily access the internet via smartphones and other mobile devices instead of desktop. The math on this is simple: you should devote the majority of your digital marketing budget towards mobile-friendly endeavors.

The good news is that many forms of mobile marketing are relatively budget-friendly. For example, social media marketing offers an intense ROI for a fairly low buy-in. And things like e-mail campaigns and SMS campaigns are a way to reach large numbers of consumers without breaking the bank.

Ultimately, it all comes back to the classic wisdom of going where your customers are. Those customers are now constantly on the go, but a generous mobile marketing budget lets you match their every step. 

Goal-Oriented Marketing

The chief challenge of marketing has always been navigating the unknown. For example, your business likely has a simple overall goal for its marketing strategy such as “expanding sales.”

How do you get from here to there, though? There are so many possible marketing strategies and channels, and it can be difficult to measure progress towards that overall goal.

That’s why your efforts should not be guided by a single goal. Instead, you should have a number of key goals, and each goal should have its own set of KPIs.

For example, your company may want to increase website visitors to a certain number or bring in more targeted leads. You should set an annual goal for these numbers and then break each goal into quarterly (or possibly even monthly) KPIs.

Such goal-oriented marketing lets you chart your progress towards a series of S.M.A.R.T. goals. And if you aren’t hitting those KPIs, that is your sign to invest in a different marketing strategy altogether.

Shifting Goals

As important as goals are, some companies feel they can never shift their original goals. This is unfortunate because marketing goals are meant to guide us, and the wrong ones can guide your company right over a cliff!

Depending on your initial goals, you must be prepared to shift your overall goals and strategies on the fly. One of the best examples of this is company branding.

New companies often throw everything against the wall to see what sticks. They are looking for anything and everything to help them stand out from their competition.

With any luck, a winning tactic will emerge. Maybe it’s a viral video that makes the rounds on social media and Youtube. What happens next?

Such a company might allocate more of their budget to video marketing. Additionally, they might shift from brand-building to lead generation in order to capitalize on viral fame.

Why Tie Marketing To Revenue?

You now have a solid starting point for how much of your revenue should go towards marketing. But have you ever stopped to ask why revenue and marketing are so closely entwined?

The most direct reason is that it helps to conservatively protect your budget. If your budget isn’t tied to revenue, then there is always a chance that you will overspend and jeopardize the company’s entire future.

Tethering marketing to revenue also ensures that your marketing budget is commensurate with the success of your company. To do so otherwise would mean you may underspend and lose your existing prominence within a given niche.

Now, there are times you will need to spend more than the amounts listed in order to strengthen your foundation or significantly expand your company. But as long as you don’t dip below 5% of your revenue, your company’s position and reputation are relatively safe.

Ways to Cut Down On Marketing Costs

No matter how big or small your business, it’s in your best interest to cut down on marketing costs. But instead of reducing how much you spend, you should look into methods that let you do more with less. That means you can afford many more marketing strategies with the same budget.

For example, Google Ads is a very effective way to boost your SEO. But if you have a qualifying business, you may be able to use Google Local Service Ads. These ads offer a greater impact in terms of customer leads, and they cost less than traditional Google Ads.

Social media marketing as a whole is surprisingly affordable. And even if you aren’t paying for ads on platforms such as Facebook, your existing staff can run an official social media account that helps with brand-building and content marketing.

And you can sometimes give classic strategies a digital facelift. For example, the newsletter of yesterday have become the e-mail lists of today, and simple incentives such as coupons and special offers are a cost-effective way to get people to sign up.

Keep Up With Competitors

We talk a lot about competitors in the marketing world. And on the surface of it, “competitor” is a pretty abstract concept. However, it’s likely not abstract for your particular company!

Most businesses have a pretty solid idea of who their primary competition is. And here’s a bit of bad news: to some degree, your marketing budget is determined by your competition.

For example, the 5% rule is a helpful guide to staying afloat in your current market position. But that rule assumes that your competition is spending roughly the same percentage.

If your chief competitor starts spending much more than that in a major marketing push, then you’ll need to spend more in order to keep up with them. Alternately, you can gamble and spend more than them in an effort to halt their momentum with your own expansion.

Don’t forget to learn a thing or two from your competitors during their big marketing pushes.

For example, reverse engineering your competitors’ SEO can let you refine your own SEO strategy while saving money. And your competitor’s successes in viral marketing can help you discover the most effective ways of reaching your shared demographics.

Futureproof Your Business By Understanding Trends

Sadly, there is no way for you to completely forecast the future. But in order to futureproof your business as best you can, it’s important to fully digest the trends we have mentioned.

You can count on digital marketing becoming even more important in the coming years. In fact, eMarketer estimates digital ad spending will comprise 66.8% of collective media ad spending by the year 2023.

And, accordingly, traditional marketing will continue to tumble. In an age of cord-cutters, you need fewer television ads and more Google Ads and Youtube Ads.

You’ll also need to spend more on social media in order to truly “keep up with the Joneses”. Hanapin Marketing found that a staggering 97% of marketers were now investing in social media. If you don’t follow along, your business may be left in the dust. 

Calculating Percentage of Revenue Spent On Marketing: The Next Step

Now you know the percentage of revenue to spend on marketing. But do you know who can help you make every dollar count?

We specialize in SEO, Web Design, Digital Marketing, and more. Whatever the size of your company and the size of your marketing ambitions, we are here to help you smash every single goal and succeed beyond your wildest dreams.

To start growing your company, all you have to do is contact us today!

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