Determining a marketing budget is one of the most stress-inducing responsibilities a business owner has. This is especially true if your company is young and still trying to gain some market share. The old saying is true: You really do have to spend money to make money. But where is the line between investing in your company’s growth and risking the financial health of your business?
The answer is: It depends.
We know. Not the simple, to-the-point answer you were looking for.
There are just so many factors to consider when setting a marketing budget, from the current objectives of your company to the standards of your industry.
Not to mention, you have to keep up with a changing marketplace. Research shows that marketing budgets are steadily increasing, with digital marketing expected to reach an investment of nearly $120 billion by 2021.
With so many moving parts, the most valuable question to ask is not “How much should I budget?” Rather, it’s “How do I determine the best marketing budget for my company?” If you can build the skills needed to strategize your marketing budget, you’ll know how to adapt for continual success as your business grows and the industry evolves.
We’ll give you a few percentages just so you have a baseline idea. But as with marketing itself, the success of your budget depends on your ability to customize for your business. Here’s how to go about doing that.
Tips for Setting a Marketing Budget
If you’ve done any research, you’ve likely found that marketing experts have a wide range of opinions when it comes to how much of your revenue should be allocated for marketing. The U.S. Small Business Administration recommends that businesses with less than $5 million per year in sales and a net profit margin of 10-12% set aside 7-8% for marketing efforts. That gives you some idea of where to start, but it still leaves many considerations unaddressed.
Here are a few other questions to ask yourself when deciding how much to allocate for marketing and advertising.
What Expenses Should Be Included in Your Marketing Budget?
First things first: Make sure you and your team know exactly what you’re talking about when you refer to your “marketing budget.” It’s very easy to miscategorize expenses or neglect hidden costs. Errors like those can make it difficult to accurately measure your return on investment.
Typically, a marketing budget includes such things as:
- PPC ads
- Print ads
- Sponsorships and social media influencers
- Public relations
- Social media initiatives
- Email marketing
- Web design and development
- Video and content marketing
When you sit down to determine how much each of these marketing channels costs, don’t forget to factor in expenses such as digital marketing tools and subscriptions, contracted talent, consultants, etc.
How Established is Your Company?
That 7-8% recommended by the SBA varies a lot depending on how well your business is established. In other words, do you just need to maintain awareness for a company that’s already seeing steady growth? Or is your brand fairly new and hoping to scale quickly?
First, let’s assume you have a revenue of at least six figures.
If you’ve already built up a loyal customer base and your brand is fairly well-established, you’d do well to spend about 5-10% of your revenue on marketing.
However, if you’re still trying to grow fast and carve out a space for your brand in the industry, your best bet is to invest a little more in marketing. A good range for young companies is 12-20% of your revenue.
Now, let’s say you haven’t hit six figures in revenue. In that case, 12-20% won’t buy you much publicity or help you reach that six-figure goal. If this is you, it’s a good idea to look at your competitors and build a budget based on keeping up with them.
What is Standard for Your Industry?
Another important factor is the industry in which you are hoping to compete. The percentages we’ve been playing with won’t necessarily perform across all markets. B2B companies can typically afford to invest a little less in marketing. B2C enterprises have to take a higher percentage of their revenue. And highly competitive industries such as pharmaceuticals and retail require a budget of 20-50% just to keep up with the other guy. So, before you commit to your own budget, do some research into what’s standard for your specific industry.
What are Your Marketing Goals?
Your customized marketing budget should factor in your current business goals.
Of course, this relates to the question of how well your company is established. A new company will have more goals related to awareness and growth, whereas a more established company might be looking to sustain awareness and inspire advocacy. As we already discussed, you typically want to invest more in marketing when you are first establishing your brand.
However, there’s another important factor to consider each time you return to your marketing budget, and that is the health of your marketing foundation.
Your marketing foundation includes all the basic elements required for clearly defining your brand and establishing credibility. To evaluate the strength of this foundation, you want to consider whether your band messaging is consistent across all platforms, if your website is up-to-date and competitive, whether you have the correct tools in place to measure your ROI, and so on.
Even if you have a marketing foundation in place, you will want to review these elements regularly. Inevitably, certain aspects will need a facelift from time to time. You’ll have to revamp your website to reflect changing UX trends. You’ll need to reconfigure your social media strategy to accommodate a younger generation who prefers a newer platform. These adaptations might mean you have to allow for a little more space in this year’s marketing budget.
Devise a Marketing Strategy
Once you’ve weighed all the considerations and set the right budget, it’s time to design a marketing strategy.
Make sure there is a specific reason for why you spend every one of your marketing dollars the way you do. Despite popular belief, marketing doesn’t have to be an all-out gamble. Take the time to carefully research your audience, your competitors, and the many digital marketing channels available to you to determine which methods are likely to yield the greatest results. Be sure to factor in your business objectives and the strategies that have served you well so far.
A solid strategy can help you see fast growth, even with a modest budget.
Calculate the Costs and ROI of Your Chosen Platforms
Now you know how much you can spend on marketing and which channels you want to invest in. The next step is to divide funds according to the platform. How much should you put towards Google Ads? What about contracting an influencer? Should you manage the email newsletter yourself or outsource it?
Take a minute to list the costs of each marketing channel as well as the expected ROI. (If you need help figuring out the ROI on harder-to-measure platforms like social media, you can find some guidance here.) These details will help you work out where your marketing money would be best spent.
Track, Measure, Revise
We’ve said it before and we’ll say it forever:
For success in marketing, track and measure everything.
Every effort represents a dollar value to your company. The more you measure the value of your efforts, the easier it is to determine which initiatives are promoting growth and which are losing money. The more you know, the faster you can adapt and improve.
If you clicked on this article in the hopes of finding a clear-cut answer for your business, we’re sorry we couldn’t give you that. Your marketing budget has to be carefully calculated based on the goals, resources, and the industry you’re working with. It’s not easy to do, but it does mean the difference between throwing marketing dollars down the drain and investing in real growth.Also, know that LookinLA is always here to help you determine the right budget for your business and set up a digital marketing strategy that gets real results. We even measure your ROI in real numbers so you can see what your investment is doing to increase profits. If you’d like to discuss your options, please feel free to contact us at any time.