Setting a Successful Marketing Budget

We are often asked this question: “How much should we spend on our marketing budget?”

Determining the right budget can be challenging in the dynamic digital marketing landscape. The Small Business Administration recommends spending 2-3% of your revenue on marketing. Are they right or wrong?

In this blog post (and the accompanying video below), we’ll show you exactly how much you should spend for a successful marketing budget and why it is worth every penny.

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The Traditional Recommendation

How much should businesses spend on marketing? The traditional advice, particularly that of the Small Business Administration, suggests allocating 2 to 3% of revenue to marketing. Unfortunately, this percentage is insufficient, especially for small businesses. So, what’s a reasonable percentage a business can expect to spend?

The 5-10% Recommendation

The bare minimum you should allocate for marketing is 5% of your gross annual revenue. This investment is important, especially in our digital era, where online presence plays a pivotal role in attracting and retaining customers. Relying solely on referrals and repeat business is insufficient in today’s competitive market, necessitating a proactive marketing strategy that costs at least 5%.

For businesses aiming for substantial growth, you should allocate 10% of gross annual revenue to marketing. This higher percentage reflects the need for more aggressive marketing efforts to capture new markets, outpace competitors, and navigate economic challenges.

Applying the 5-10% Rule

Here’s how this would look at various levels of annual revenue. First, imagine that your business generates $250,000 in annual revenue. That means you should allocate a minimum of $12,500 to sustain and up to $25,000 if you’re pursuing growth. That’s around $1000 – $2000 per month.

Now imagine that your business is generating $500,000 annual revenue business. The budget would range from $25,000 to $50,000 annually (around $2000 – $4000 a month). For a million-dollar business, it would be $50,000 to $100,000 annually (around $4000 – $8000 a month).  This scaling approach ensures marketing efforts align with the company’s size and growth ambitions.

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Where Should You Spend Your Marketing Budget?

Marketing budgets, like most investments, need to be diversified. Your marketing budget should encompass various marketing channels, including print advertising, digital marketing, social media, SEO tools, and other promotions. The more ways you can connect with your customers, the better returns you will find. Then, as you spend, you can evaluate which channels are most effective and reallocate your budget to ensure a positive return on investment. This comprehensive approach ensures businesses invest wisely in strategies that yield tangible results.

A Personal Example

We don’t just talk the talk; we walk the walk and have deployed this strategy in our own company. When spending the recommended 2-3%, we didn’t experience much growth. Once we changed strategies and started to spend more aggressively, in the 10% range, we started to see business growth. We also began to leverage more diverse marketing channels like videos, emails, ads, calls, and blog posting. This multi-faceted approach has proven the importance of an aggressive and diversified marketing strategy.

Set Your Own Successful Marketing Budget

Is it time for you to think beyond the 2 to 3% recommendation, too? If you’re looking for substantial growth, you need to make a substantial investment. That means investing between 5 to 10% of gross annual revenue to compete in today’s market effectively.

Crafting an effective marketing budget is critical to your business strategy. We hope these pragmatic and actionable recommendations will help you set the right budget based on your business’s unique circumstances and growth ambitions. By understanding the significance of a well-thought-out marketing budget, you can position yourself for success in our competitive landscape.

Want to learn more about marketing budgets?Check out this recent blog post: