The Blue Kite Blog

How Much Should Your Business Budget for Marketing?

By | February 04, 2015

One of the most common questions I get from companies is about marketing budget – especially from companies who have never spent a dime on marketing before.

How much is enough? What should I spend on marketing to get the desired results? 

If you’re looking for an easy answer, there isn’t one. 

Oftentimes, people will suggest determining your marketing budget based as a percentage of your revenue. Depending on the size and type of your business, those recommendations range from two percent to 20 percent of your top line revenue.

There’s a huge difference between those numbers! Not to mention, it tries to apply a one-size-fits-all answer to your business.

Although using percentages can be a good starting point for determining your marketing budget, it shouldn’t be where the conversation stops. Your business is unique and your marketing budget will be also.

So, how do you even know what makes sense for your business? 

While there aren’t any easy answers, we’ll walk you through some of the important factors to consider as you build your marketing budget.

How to Create Your Marketing Budget 

Before you start building your budget, there are couple of ideas you should keep in mind.

First, it’s important to look at marketing as an investment – something that will help you grow, much like you would consider investing in a larger building or hiring the right people.

Effective marketing should be a revenue driver, not a cost center. In other words, marketing helps you bring in money for your business.

Second, remember that it takes time to see marketing success. I talked about this a bit last week. The money you spend on marketing today will start to pay off 6-12 months from now. Marketing works, but you must to be patient to start seeing results.

That’s not to say you shouldn’t see leading indicators for success before then. But, marketing done the right way takes times before you start to get the momentum you want for your business.

Factors to Consider When Building Your Marketing Budget

There are a lot of factors and variables that come into play when building your marketing budgets. Here are some of the top considerations to keep in mind as you create your marketing budget.

1. Size and age of your company.

The marketing budget for a new startup will be much different than a larger, established company.

Startups may need to dedicate a larger portion of their budget to marketing at first in order to build the awareness they need to generate revenue. If you look at building a budget based on revenue percentage, that’s where you can see budgets in the 20 percent range.

On the other hand, larger companies that have been in business awhile might not need to invest as heavily in marketing. Not only is their business larger (meaning their marketing budget percentage will be smaller), but also they already have an established brand and customer base to build on.

What stage of life is your business in? Understanding that is a good place to start.

2. Type of company.

Marketing spending varies wildly depending on the type of business you are in. For instance, B2C companies usually invest more heavily in marketing than B2B companies.

Also, if you are in a type of business that relies heavily on referrals, such as a physician’s office, you might not need to invest as much in marketing. Consider the kind of business you have and build your marketing budget with that in mind. 

3. Business goals.

If you have aggressive goals for the year, then your marketing budget should reflect that.

For instance, if you want to double the size of your business this year, you will need to invest a much larger percentage into marketing to drive the results you want to achieve.

If you know your customer acquisition costs, then it becomes much easier to determine your budget because you can simply multiply those costs by the number of new customers you want to gain this year. 

4. Competition.

How much are your competitors spending on marketing? Although you might not be able to find out the exact amount, you can get some ideas on their marketing spending based on the kind of marketing activities you can see.

For instance, are they spending money on television ads? Are they investing heavily into content marketing? Look at what your competitors are doing and you should be able to get a general idea.

Also, it’s important to consider that if you are in a competitive market, you will likely have to spend more on marketing.

5. Industry norms.

Looking at how much your industry spends on marketing can give you some ideas on where to start with your budget.

There are plenty of studies and reports that can give you an indication as to what companies in your industry typically spend. Not that this should dictate your company’s marketing budget, but it can help give you a general idea of what to expect.

6. What you can afford.

Although you might want to invest significantly in marketing, you also have to be realistic about what your business can afford.

How much cash do you have to spend on marketing each month? Look at your financials and determine how much room you have left in your budget to spend on marketing. Or, how much are you willing to invest in marketing?

It might be that you have to start small and plan to ramp up your marketing budget as you begin to grow and drive more revenue from your efforts.

7. Your marketing plan.

When we work with our clients, we start our relationship by building their marketing strategy. Sometimes, that plan is based on a budget, but most of the time, we build the strategy first and the budget comes second.

We do this because it allows us to build a plan that will support the company’s goals and takes their customers and competition into account.

Once the marketing strategy is created, we build a marketing budget to support it. Certainly, many businesses can’t afford to implement everything that we recommend. However, by building the budget based on the marketing plan, we can determine how much money is needed to implement the marketing initiatives that will be most impactful for their business.

If you have a marketing plan in place, use that to determine exactly how much you need to invest to implement it.

Does your company have a marketing budget? What process did you follow?

Or, if you don’t have a budget, did this help? What questions do you still have? Let me know if the comment section. I’d love to help you think through this!

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