After extensive research, our data analysis team concluded:
- A general rule of thumb is to spend between 7% and 8% of gross revenue on marketing and advertising, although this can increase to as high as 40% in some instances.
- Marketing budgets as a percent of firm revenue peaked in June 2020.
What is a good percentage of sales?
Marketing Budget Benchmarks A very small percentage of businesses, mainly consumer packaged goods companies, are spending above 20 percent. It is safe to say that businesses should be spending at least between 1 percent and 10 percent of sales revenue on marketing, in order to execute an effective marketing plan.
How much should you spend on advertising and sales promotion?
The 5% Rule BUT, as a general rule based on the latest research, expert opinions and years of marketing experience, we say: You should spend 2–5% of your sales revenue on marketing.
How much should I spend on advertising a small business?
The U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for marketing and advertising if you're doing less than $5 million a year in sales and your net profit margin – after all expenses – is in the 10 percent to 12 percent range.
What is a reasonable marketing budget?
Marketing Budget Percentage of Revenue The U.S. Small Business Administration recommends small businesses (businesses with revenue less than 5 million) allocate between 7% and 8% of total revenue to marketing — assuming your business has margins in the range of 10-12 percent.
How much should you spend on advertising?
Advertising Spend If you want to maintain current revenue amounts, then 5% to 10% of sales allocated toward advertising may suffice. If you want rapid growth, then you may need to push that number higher, possibly to 20% or more depending on the industry and type of business you operate.
How much should I budget for social media advertising?
How much should you budget for social media advertising? While every company's social media ad strategy varies, most businesses spend $200 to $350 per day on social media advertisements. That translates to $6000 to $10,500 per month and $72,000 to $126,000 per year.
What is a good marketing budget for a startup?
While there is no set rule to establishing your marketing budget, founder and CEO of Elevate My Brand, Laurel Mintz, recommends that startups set their initial budget to 12 to 20 percent of gross or projected revenue.
How much do companies spend on advertising?
The US Small Business Administration recommends a marketing and advertising budget of 7%-8% of Gross Sale. But generally it is observed that a small business typically spends around 10% of its revenue on advertising, but several factors can alter this percentage.
What is the problem with advertising to sales ratio?
One problem many marketers have with advertising-to-sales ratios is that sales do not drive advertising; advertising drives sales. Profit drives advertising. Within the same industry, for instance, you might find a "volume" company that sells on low margin and high volume and a "profit" company that will not sacrifice profit for the sake of volume. It's a no-brainer to identify the company that has more to spend on advertising if they're both doing, say, $10 million a year in sales. As a general principle, high-margin players typically spend more on advertising than low-margin players irrespective of the industry and what the industry's "average" advertising-to-sales ratio might be. Use these ratios with extreme caution, because they can be misleading.
What is the largest chunk of advertising budget?
Media typically is the largest chunk of an advertising budget. You want to make doubly sure that you are directing your advertising to the audience having the greatest potential of becoming customers.
How much of your revenue should be spent on marketing and advertising?
Many sources on the internet will suggest anywhere from 5-10% of your revenue should be spent on marketing and advertising.
What is the rule of thumb for B2B?
The rule of thumb: B2B leverages sales to generate leads, B2C leverages advertising to generate leads.
What is the rule of thumb for investing?
The rule of thumb: The more growth you desire, the more you need to invest.
Is building a brand more expensive than maintaining it?
The rule of thumb: Building a brand is more expensive than maintaining it.
What percentage of advertising expenses should be?
There isn’t a one-size-fits-all answer to the question of what percent of expenses should be in advertising. A variety of formulas and calculation methods, each with their own advantages and disadvantages, will arrive at different amounts. Rather than relying on guesswork or trial-and-error, a new business or a business setting its first advertising budget can research the ratio of advertising expense to sales percentages for other businesses within the same industry and use these percentage ratios as a comparison to set an initial advertising budget that is within the industry average.
How to set percentage based advertising budget?
To use the objective-and-task method the business first sets a sales objective for the coming year and then creates a list of the tasks most likely necessary to realize the overall objective. For example, a business may want to increase dishwasher sales by about 20 percent over the coming year. Historical information reveals that sales increased by 5 percent during the last round of television advertising and 3 percent for print advertising. The business decides to use a combination of two rounds of television advertising at $700 per round and four rounds of print advertising at $200 per round to potentially increase sales by 21 percent, at a total cost of $2,200. The difference is that instead of basing the percentage on sales, the percentage comes off of the total marketing budget. If the annual marketing expense budget is $4,000, advertising expenses will consume 55 percent of this amount.
Is paid media advertising the most expensive?
Paid media advertising may be the most visible marketing tool, but according to Bloomberg Businessweek, it is also the most expensive. Despite its high cost factor, advertising is, however, a necessary part of the cost of doing business. Small business owners can avoid a tendency to overspend by setting a strict budget for advertising expenses that reflects a percentage of sales or of marketing expense.
Conclusion
While some businesses use as much as 40% of their gross revenue for marketing and advertising purposes, most fall within the 5% to 8% range, depending on the industry, competition, target market, goals, and affordability.
Sources
Ven:Dux. The Start-up Dilemma – How Much to Spend on Sales Marketing. Accessed on 9/20/21.
How much do new companies spend on marketing?
Newer companies must typically spend more on marketing and advertising–usually between 10% and 20% of your revenue.
How much will digital marketing spend in 2020?
Generally speaking, digital marketing budgets have grown in recent years. Forrester Research projects that businesses will spend an average of 45% on digital marketing by the end of 2020.
Why Tie Marketing To Revenue?
You now have a solid starting point for how much of your revenue should go towards marketing. But have you ever stopped to ask why revenue and marketing are so closely entwined?
Why is tethering marketing to revenue important?
Tethering marketing to revenue also ensures that your marketing budget is commensurate with the success of your company. To do so otherwise would mean you may underspend and lose your existing prominence within a given niche.
Why is it unfortunate to have marketing goals?
This is unfortunate because marketing goals are meant to guide us, and the wrong ones can guide your company right over a cliff! Depending on your initial goals, you must be prepared to shift your overall goals and strategies on the fly. One of the best examples of this is company branding.
What goes into a marketing foundation?
What goes into a marketing foundation? Typically, things like branding, web design, web development, and marketing strategy development.
Why do percentages fluctuate?
One reason that these percentages fluctuate is that different industries spend different amounts on effective advertising. And individual businesses may be able to leverage existing resources more effectively to reduce their overall marketing spend.
4. Look at key marketing budget statistics
In the service consulting industry, the average marketing spend is 12% of turnover (source)
5. Consider your marketing budget ROI
The old saying goes: You need to spend money to make money. However, while most companies will spend around 5% of their total revenue on their day to day marketing to maintain their position, they will up that amount to around 10% when they aim to grow and establish a greater market share of their niche.
6. Pay special attention to mobile marketing
While you need to first build a strong marketing foundation as mentioned above, dont forget that as time moves on your focus must be targeted towards the ever-growing mobile marketplace.
7. Decide on your marketing channels
It is unlikely that everymarketing channelyou have will be right for your marketing efforts, but for those that are effective, it can make a massive difference for your company awareness, positive customer experience and satisfaction, and therefore sales.
So, how much should you spend on marketing?
While there is no one-size-fits-all answer to this, you can simply use the 5% rule as mentioned above as a broad blanket approach to cover your marketing needs to begin with, especially if you are starting from scratch, and then dig a little deeper to plan your budget as you move forward.
Marketing budgets FAQ How much do companies spend on marketing?
The general rule of thumb is to spend 5% of your business turnover on marketing. But this varies significantly by sector and by the marketing strategy set out by the company. Some businesses spend more than 20% of their revenue on marketing if they are trying to make fast entry into their market. How much should a small business spend on marketing?