How Much Should My Business Spend on Marketing?
“How big should my marketing budget be?” is a question that EVERY business owner wonders, but MANY are afraid to ask. But don’t worry! As a marketing pro that has been in the trenches for over 25 years working with companies of all shapes and sizes, I’m here to break it down for you. There are some guidelines that are time-tested and proven, and I hope they help you in this important business decision.
The Marketing Budget
First of all, let’s identify what makes up your marketing budget. Your budget consists of all marketing related spending including:
Media purchases (Google Ads, Facebook Ads, newspaper/magazine/TV/radio ads, etc.)
Professional services (marketing agencies, graphic designers, social media content creators, PR professionals, etc.)
Promotional items (t-shirts, hats, and other giveaways)
Marketing-related technology and software subscriptions (website hosting, social media scheduling software, etc.)
It’s crucial to be sure you are looking at your marketing budget as a comprehensive plan for growing your company. All of the different areas are working together (when performed properly) to promote your brand, build awareness, and drive leads & sales to your business.
The 5%/10% Rule
As a Rule of Thumb, companies looking to MAINTAIN their current sales volume should spend roughly 5% of their gross revenue on marketing. Companies looking to GROW their sales volume or increase market share should spend 10% of their gross revenue (or projected gross revenue in the case of start-ups) on marketing. At these levels, companies operating at margins of 10-15% or better should be able to run a healthy marketing program while maintaining financial stability.
Margins vary from industry to industry and company to company of course. Businesses running at slimmer margins or businesses with revenues greater than $10 million may want to consider a marketing budget in the 3-5% range to preserve financial health while maintaining revenues. Visit www.sba.gov for more information on the U.S. Small Business Administration’s recommendations in this area.
I couldn’t sleep at night without mentioning ROI in every single marketing budget conversation, so here’s a quick reminder. Always be measuring and monitoring the Return on Investment of your marketing budget. For each campaign, track the number of leads, your close rate and average sale price, and compare that to your ad spend to determine your Marketing ROI. (Frequently, we work this equation backwards to determine how many leads are required to reach revenue goals, but that’s another blog post!)
Some Exceptions
As with any rule, there are exceptions. One of the most important exceptions to consider is the need to invest in building a rock-solid foundation for your brand, including a clear brand strategy, graphic identity, and an effective website. Without this investment, all of your other marketing expenditures may be wasted. After all, what business owner wants to spend money on Google ads driving traffic to a poorly designed website that fails to convert visitors into leads? In addition, why would anyone choose to spend money on newspaper ads that don’t reflect the company’s image and values? For this reason, it’s important to set aside enough resources to create that solid marketing foundation that will carry through every other part of the process.
At Screaming Fans, the very first task we perform for each new client is establishing their Brand Identity and their Buyer Identity. This ensures that every member of our team is working from the same playbook to communicate our client’s image, values, product offerings and differentiators in each and every piece of marketing we create.
When it comes to websites, I can’t stress enough how important it is to invest in a site that acts as your 24 hour a day, 7 day a week salesperson. Your website should represent you to the fullest and work overtime to convey information, and move your visitors down the funnel from information gathering to converting into a lead and a potential sale.
Conclusion
If you're ready to expand your business to the next level, you're going to want to take a serious approach to marketing and invest in a solid marketing plan. When it comes to the success of your company, your marketing efforts are imperative, and in today's day and age, your company needs to stand out from the competition. With these tips and the right marketing professionals standing behind you, we're certain that your business will continue to grow and thrive for years to come.