How much should you budget for marketing? Ask that question of 100 different marketing professionals and you will probably get 100 different responses. It is not that marketing professionals are stupid (easy, I am one of them!), but there are some variables to consider when answering that question.

Since I get asked this question by just about all of my clients, I have researched what other marketers, business bloggers, C-level executives and the U.S. government have to say about the subject of marketing budgets. All of them agree that it is dependent upon several factors, including the age of the business, the industry, how many competitors a business is contending against, and any special promotions or initiatives the company is introducing to the marketplace (i.e. new product launch, opening a new market, rebranding the company, etc.) Let’s look at the factors.

The age of the business

How old is your business? Let’s take a look at three different age categories: startups, new businesses less than 5 years old and established businesses older than 5 years. If you are a startup, your marketing budget needs to be much larger than a company that is established. Why? Because you have to get your brand up to speed to be able to compete in your marketplace. That takes considerably more marketing than a company that is already established. Think of it as driving on an interstate highway. There are onramps for automobiles entering the highway and they are designed to take them from a low speed to a high speed. To go from zero to 70 mph by the time you get to the end of the onramp, you have to burn more fuel than the cars that are already up to speed. The same thing happens to startup companies. It is not uncommon for startups to spend 15-20% of their gross revenue on marketing to get them up to speed.

If you are a new business that has gotten past the startup years, but are still building your customer base and trying to gain a bigger share of the market, most of the marketing bloggers I read say you should be allocating 12-20% of your gross revenue for marketing. The U.S Small Business Administration sets this number lower. It states that if you are generating less than $5 million in gross revenues and have a profit margin of 10-12%, you should be allocating 7-8% of your gross sales to marketing.

If your business has established its brand and has a large enough customer base to support the business, retaining that base with steady growth will take somewhere between 6-12% of your gross income dedicated to marketing. However, this is where many established businesses get tripped up. They cut back on their marketing and lack the strategy to make changes to compete, even in a very good economy. 

Marketing budgets by industry

Other factors can drive your marketing budget up or down. Your industry may be one that requires more advertising than others. Most business-to-consumer (B2C) types of businesses require more marketing than do business-to-business (B2B) companies. If you are looking for a way to compare your marketing budget against other companies in your industry, a helpful study is put out every six months, known as the CMO Survey. It is published by Deloitte and is sponsored by the Fuqua School of Business at Duke University and the American Marketing Association. The February 2018 survey found that on average, 11.1% of a company’s overall budget (planned expenditures without considering net profits) was devoted to marketing. When you compared this spending on marketing to the gross income, it was 7.9% of total revenues. When you look at different industries, this number fluctuates greatly. For instance, the survey suggests that Consumer Services are at the high end of the marketing-to-revenues spending with 18.9% of gross revenues expensed to marketing. Manufacturing is on the low end, with 2.4% being spent on marketing.

The other drivers

Another factor to consider in your marketing budget is the number of competitors you have that are vying for the same customers. The greater the competition, the more marketing you will have to do to win customers over to your side. Other factors include changes in the general marketplace. Think of the big shift that has occurred in the virtual marketplace. Brick and mortar stores cannot compete with online retailers. You have to recognize these types of changes and change your marketing to keep up with them. A good marketing strategy will help guide this process and help you set your budget. This is a very important step that needs to precede your budgeting process. If you don’t have a marketing plan based on research you have done on your target market, your competition, and changes in your marketplace, you will more than likely either spend your marketing dollars inefficiently or under-budget for the coming year. In either case, you have opened yourself up to losing customers to your competition.

Changes drive marketing budgets up

When changes to your marketing happen, they drive your marketing costs up, much like startup businesses spend a greater percentage for brand awareness than do established companies. But change is inevitable in business, and marketing has to adjust or you will lose business. In years where you are launching some new marketing initiative, expect to increase your budget to the higher ends of the percentage brackets given above.

What are the trends in marketing budgets?

Marketing budgets are on the rise according to the CMO Survey. On average, the businesses surveyed said they were expecting to spend 8.9% more on marketing in the next 12 months. Over the previous 12 months, they had actually spent 7.1% more on marketing than the previous year. The trend is for marketing budgets to increase.

The economy is growing. The opportunity to sell more is also growing. Marketing budgets have to keep pace or be left behind. However, with changing times come new marketing mediums that are easier to measure and more efficient spends. The smart marketer is looking not only at the opportunities, but for the best return for their money. Now is the time to make a plan. Part of that plan is to allocate the resources you need to make marketing work. Henry David Thoreau said, "In the long run, men hit only what they aim at.” This is true of many things in life, including your marketing plans. Keep that in mind as you build your marketing budget.

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How Much Should You Be Spending on Marketing? by Molly Meyer, nuphoriq.com, November 28, 2017

Marketing Budgets Vary by Industry, by Christine Moorman, The Wall Street Journal, January 24, 2017

How to Set a Marketing Budget that Fits your Business Goals and Provides a High Return on Investment, by Caron Beesley, U.S. Small Business Administration: Blogs: Managing a Business, January 9, 2013