How Much Should You Spend on Marketing?
If your marketing budget is too small, your efforts won't gain enough momentum to be effective.
If your marketing budget is too big, you'll end up throwing money at campaigns without considering strategy.
So what’s the right amount?
The Right Marketing Budget is One that Helps You Achieve Your Goals
We work exclusively with small and medium businesses, and we’ve been advising their marketing decisions for years. There are only a small number of variables that go into determining an appropriate budget. We took these factors and created a calculator to help business owners get a better idea of how to set their marketing budgets.
Curious about our methodology? Read more below the calculator on how we use five questions to guide your marketing budget.
Ready to find out what you should spend on marketing? Fill in your answers below and hit “Calculate” to get a suggested budget for your goals.
How We Calculate the Right Marketing Budget
What should you spend on marketing? The answer to that question feels very elusive to most business owners. Many just take a stab in the dark. Others may just take a percentage of revenue. And some may not set a budget at all, just spending as they see fit through the year.
But there are five variables that go into setting an appropriate budget for each business. Because every business is unique! These five things help you determine what you should spend on marketing to reach your goals.
Last Year’s Revenue
It’s important to know the scale of your business. A company earning $500,000 a year in revenue is in a different situation than one doing $10,000,000. Some suggestions are to simply take a percentage of this number for your marketing budget. But that is far too simplistic and doesn’t account for necessary detail. The next four criteria give the nuance that’s needed to set a useful budget.
Operating Profit Margin
Revenue is one measure, but it can mean very different things in different businesses. If your business operates with 40% operating profit margin, then $1 million in revenue has a lot more bottom-line benefit than it would in a company with 15% operating profit margin. We need to decrease the marketing budget when margins are thinner.
There is maintenance marketing and there is growth marketing. If a business has no growth goals, they only need a minimal maintenance marketing budget. But if your business plans to grow by 25%, 50%, 100%, or more, the marketing budget needs to increase to help achieve those goals.
There are some businesses that are very inexpensive to market because it is very easy to acquire customers. Whether it’s because the market is very hot or the competition is non-existent, you don’t need to spend as much on marketing when it’s easy to acquire customers. But when the market is cutthroat and saturated and your competitors are great marketers, budgets need to increase to compete.
Reliance on New Customers
Lastly, we need to factor for how much of a company’s revenue comes from consistent, loyal customers, and how much comes from new customers. If you can retain most of your revenue year over year without doing hardly anything, then your reliance is very low and your marketing budget can be decreased. But if the model of your business is such that it has virtually no repeat customers and every sale has to come from a new person, this requires more marketing efforts to support.
With these five criteria, we apply our equation that determines how much the budget is affected by each of these factors. The answer is a great starting point in understanding how much you should budget for marketing.
If you’d like professional advice on how to make the best use of your budget, we can help with that! Ask us about our annual strategic marketing plans.