I have been thinking about pizza today. It may be because I ate two leftover pieces of pizza at my desk for lunch. However, I think it has to do with a question I often get when talking to a customer about their marketing plans: how large is the slice that marketing is going to take out of our business pizza? Okay, they may not word it quite that way, but the question is still relevant: what percentage of my gross sales should be paying for marketing?

The answer to that question depends upon the answers to two other questions. First, what kind of business are you running? Second, where are you in the development of whatever it is you are selling? Let’s take a look at each of these.

Your business category

Certain types of businesses have to spend more than others on marketing due to the volume of different products they sell or the competition of their industry. For instance, think about a supermarket and the many products they stock on their shelves. They are also in a highly competitive industry that is driven by weekly specials, coupon discounts, and moving large inventories of perishable products. It is not like the bananas on their shelf today will be sellable next week at this time. You can expect a higher percentage of your overall sales to be dedicated to marketing in that situation. The same can be said of many retail businesses. Typically, a business in this situation would spend 6-10% of its gross sales to market their goods.

On the other end of that spectrum would be a wholesale distributor or a business that is selling one or two products. In that case, your marketing costs would be more in the 1-5% of your sales. Of course there are drivers that will escalate those costs. If your competition is ramping up their advertising, it will have an impact on the way you compete with them.

Product development

The other big factor in marketing spending is the stage you are in promoting your product or service. If you are launching a product, marketing has to ramp up. It is much easier to promote an established product than it is to get someone to try something for the first time. Awareness marketing and first time sales marketing have to be escalated quickly when you are getting the product into the minds and the hands of potential customers. In this case, marketing costs can be 20% of your sales in the first year, then should scale back as your brand takes hold.

Are there exceptions to these rules? There are, and it has to do with your brand positioning. For instance, discount retailer Walmart is reported to spend only .4% of their sales on advertising. (Keep in mind that advertising is only one aspect of marketing.) How does the world’s largest retailer do it? It is all in their branding. They have built their business brand on having the lowest prices. They use their competition’s marketing as their own. If you have a competitor’s coupon for an item Walmart carries, they will sell it to you for the same price. How much did that cost them in advertising? Virtually nothing. In this way, Walmart does not have to advertise any of the thousands of items they stock. They just brand themselves as the low price leader. But don’t mistake their low advertising costs with a formula for success until you have established your brand. Walmart did not become branded as the low cost leader overnight. That brand was built over years of a simple and consistent message. Let’s also not oversimplify their ad spending. If you do the math, .4% of their 2013 gross sales* would be $1.9 billion spent in advertising.

How big is your piece of marketing pizza? Take a close look at the ratio between your gross sales and your marketing spending. If you need more sales and your ratio is on the low side, it may be time to pony up and increase your marketing budget. If you are on the high side, you may need to change your marketing strategy. Spending a lot of money on marketing is no guarantee of sales. You have to spend those dollars wisely. But spending nothing on marketing is a guaranteed way to go out of business.

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*Corporate & Financial Facts, http://news.walmart.com/walmart-facts/corporate-financial-fact-sheet