What Percentage Of Revenue Should Be Spent On Marketing?

aspects of marketing

When you own a business, regardless of what industry it is in, a big part of helping to make it grow, while also building a larger customer base is to develop an effective and cost efficient marketing strategy. The type of marketing plan that you develop will certainly depend on your specific type of business as well as your budget. However, it’s important to not spend too much on advertising, but you don’t want to spend too little either. As a business owner, one of your biggest decisions will be to determine what percentage of revenue should be spent on marketing.

Listen To Experts

While many people have their own opinions on this matter, leading experts, including the U.S. Small Business Administration recommend that business owners who are doing less than 5 million dollars per year in sales, and who have a net profit margin between 10 and 12 percent, should spend between 7% and 8% of their gross revenue for advertising and marketing.

Of course, there can sometimes be conflicting information when you’re trying to determine what percentage of revenue should be spent on marketing. For example, some marketing experts recommend that small businesses and new start-ups allocate 2 to 3 percent of their revenue for their advertising and marketing budget; however, this budget might need to be pushed all the way up to 20 percent for businesses that are in highly competitive industry. Other experts advise business owners to establish a marketing budget between 1 and 10 percent of revenue for their advertising and marketing programs; and increasing this base marketing estimate for businesses in high competitive industries or for established businesses that can afford to put more money into their marketing campaigns. Clearly, there are many different opinions on how much a business owner should spend for hiring a marketing firm.

What Are Your Business Goals?

How you spend this marketing budget will depend on your specific business goals. Of course, getting the best return on your marketing investment is an essential part of helping your business succeed. Whether you’re investing in social media marketing, local advertising campaigns or television and radio spots, you should have a clear plan for your marketing, including your overall goals. Making sure that your advertising dollars are giving you the desired return can help you determine where you need to spend more money as well as areas of advertising that you might want to reconsider.

Understand Where You Are Spending The Money

Once you have established your marketing budget, you’ll need to determine how it will be dispersed across various channels. For example, most businesses, regardless of size, will have both online and offline advertising campaigns. In addition to these two different types of marketing, you’ll also need to determine how money will be allocated within your online and offline marketing. Online marketing will generally include advertising on a variety of different social media platforms as well as banner ads, mobile marketing, and even online video marketing.

There are many variables that can influence how much money you spend on advertising. For example, even if other businesses in your industry are spending more, you need to set a marketing budget that is affordable for your business. Other factors that can influence your marketing budget include keeping competitive with your competition (if you can afford it), in addition to the fluctuations that come with introducing new products or the higher costs associated with starting a new business. In the end, you’re going to need to determine how much you can afford to spend while taking into consideration the other needs of your business. Sometimes, you’ll need to spend more, especially if you’re introducing a new product or if your biggest competition has upped their advertising.

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