How much should I spend on marketing?
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Planning April 24, 2019
6 min.
Marketing is essential to building awareness of your brand and products and maximizing your revenues. But how do you know if your marketing budget works? What ratio of your sales should you devote to it to become a successful company? How do you know if you’re doing too little or too much? It’s impossible to give an example of a definitive marketing budget since so many variables come into play. But here are a few things to consider when setting yours.
How do you work out the basics? Calculate your marketing budget with a percentage of your sales!
Experts agree that the ideal amount of your marketing spend is based on your sales. You need to set aside a certain percentage to reinvest in promotions. But exactly what percentage? Here’s where the agreement between specialists gives way to endless debate. The variations between recommendations are enormous!
In B2B, the percentage of annual revenues allocated to marketing averages between 6.3% and 6.9%. This is a valid benchmark, but you’ll find suggestions ranging from 1% to 20%. Your company’s situation and external factors will significantly influence the amount you should spend.
One reason for the differences in prescribed ratios is the elements included in marketing. Some see sales-related costs as part of marketing, while others separate these from marketing costs. Some people have different definitions of marketing. So, take recommendations with a grain of salt.
Generally, an established company with a strong brand image promoting well-known products should spend less. Conversely, a younger company or one launching a new product must consider increasing its budget to earn a place in the public’s hearts – and Internet users! In B2B, the average marketing spend rose by around 7% in 2018.
How to set and allocate your marketing budget
When establishing and allocating a marketing budget, digital or otherwise, careful planning and strategic resource allocation are crucial. Start by assessing your current budget and identifying areas that can be reorganized or optimized. Consider the evolution of marketing channels and consumer behaviour to make informed decisions.
Analyzing the performance and effectiveness of different marketing channels and activities is essential. Evaluate which channels generate the best return on investment (ROI) and allocate a proportionate budget accordingly. Given the growing importance of digital marketing, allocating a significant proportion of the budget is essential, as it offers diverse and cost-effective opportunities to reach and engage target audiences. In short, it requires some well-thought-out calculations!
However, it’s essential to strike a balance and pay attention to the potential value of traditional advertising channels. Even if the budget allocated to traditional advertising declines, it still plays a role in specific industries or target markets. Assess the relevance and impact of traditional advertising for your specific audience, and allocate a reasonable budget accordingly.
Also, consider the importance of testing and experimentation in your field! Allocate part of your budget to running small-scale tests and pilot campaigns to gather information about your audience and assess the viability of new marketing activities or channels. This approach allows you to make data-driven decisions and optimize future budget allocations based on actual results.
Finally, ongoing monitoring and analysis are essential to budget optimization. Regularly monitor the performance and ROI of your marketing initiatives, make any necessary adjustments and reallocate resources to the most promising areas. This iterative process ensures your budget is continually optimized and aligned with your marketing objectives.
By carefully evaluating, planning and monitoring your marketing spend, you can make informed decisions and allocate resources effectively to achieve maximum impact, drive business growth, and reach your goals.
And that’s not all! Other components influencing your marketing budget:
To determine the appropriate percentage of annual revenues to allocate to marketing, several additional factors can influence the equation. These factors help refine your budget allocation and ensure that it matches your specific situation and objectives.
One influential factor is your industry. Marketing requirements and standards vary from sector to sector. For example, the communications, education and customer service sectors often require more elaborate and extensive marketing campaigns to stand out in competitive markets. On the other hand, sectors such as construction, energy and manufacturing may adopt a more frugal approach due to specific market dynamics and customer preferences. Understanding your industry’s specific demands and competitive landscape provides valuable context for determining your marketing plan and budget.
Competitive analysis is another crucial aspect. Even if your competitors don’t disclose their marketing budgets, studying their campaigns and strategies can provide you with information and points of comparison. Assessing their activity level, market presence, and messaging can help you gauge the competitive landscape and determine the level of investment needed to position yourself effectively in the marketplace.
Your financial situation also plays a vital role in budget allocation. Consider the stage your company is at, whether it’s a start-up, a growing company, a company in a restart phase, or a company looking to streamline its operations. Each stage requires a different approach to marketing and should be reflected in your budget allocation. By aligning your budgeting with your financial reality and overall objectives, you ensure your resources are optimally allocated to meet your company’s specific needs and growth trajectory.
In addition, your marketing strategy and the objectives associated with your product or service are crucial elements to consider. Define the goals you wish to achieve through your marketing efforts and assess the central role of the product or service in your overall business plan. Understanding the product’s life cycle, market positioning, and target audience will help you determine the level of investment needed to ensure its success and achieve the desired results.
By taking these factors into account, as well as market research on your industry, competitors, financial situation and marketing strategy, you can create a more comprehensive and tailored budget allocation that reflects your company’s unique circumstances and objectives. This bigger picture approach ensures that your marketing budget is strategically aligned with your goals and maximizes the potential for success in reaching and engaging your target audience.
Annual marketing budget example for a web marketing company
As mentioned above, it’s impossible to give a definitive example. But for the sake of the exercise, here’s a (fictitious) sample marketing budget for a small to medium-sized business.
1. Website development and maintenance: $5,000
Website design and development
Hosting and domain fees
Ongoing website maintenance and updates
2. Search engine optimization (SEO): $3,000
Keyword research and analysis
On-page optimization
Off-page optimization (link building, content promotion)
SEO analysis and reporting
3. Paid advertising (PPC): $2,000
Google Ads campaigns or other PPC platforms
Ad creation process and copywriting
Bidding and keyword optimization
PPC analysis and reporting
4. Content marketing: $2,000
Content creation (blog posts, articles)
Content promotion and distribution
Social media content development
Content performance tracking and analysis
5. E-mail marketing: $1,000
Software or service fees for e-mail campaigns
E-mail template design and copywriting
List building and segmentation
E-mail analysis and reporting
6. Social media marketing: $2,000
Social media management and monitoring
Content creation and publication
Social media advertising (paid campaigns)
Social media analysis and reporting
7. Conversion rate optimization (CRO): $1,000
A/B testing and conversion tracking
Landing page optimization
Conversion funnel analysis and optimization
Conversion rate optimization analysis and reporting
8. Analysis and reporting tools: $500
Website analysis software
SEO analysis tools
PPC analysis tools
Social media analysis tools
Total Web marketing budget: $16,500
N.B.: Keep in mind that this budget is a general example and may vary according to your small business’s specific needs and objectives. It’s essential to allocate your budget wisely and focus on the key areas that will significantly impact your target audience and your business growth. Regular budget monitoring and performance analysis will help you optimize your web marketing efforts according to your resources.
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