Marketing

Marketing budget calculation: how much should you spend?

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Companies need to spend money on marketing to get their message out. But the question of precisely how much marketing budget they should spend can sometimes be a little elusive. After all, if winning customers is the aim of the game, shouldn’t firms be prepared to spend all their revenue on marketing activities?

In this post, we answer this question and more. We explore what a marketing budget should include before moving on to some estimates of roughly what you should look to spend. 

What’s in a marketing budget?

When designing a marketing budget, it’s helpful to have a picture of what’s actually included under the umbrella of marketing. Each company needs to define this itself. No two companies are the same because the extent of their marketing activities differs. 

If you are constructing a marketing budget, you’ll need to include:

  • Money spent on agency services
  • Salaries of in-house teams
  • The cost of resources for in-house teams
  • Money spent on freelance services
  • Expenses involved in running online and offline advertising campaigns
  • Ancillary costs, such as website maintenance fees, brochure publishing costs, etc. 

Many companies are surprised to find out how much they are spending on marketing already. When they crunch the numbers, they discover that advertising activities are taking up a bigger chunk of their budget than they imagined previously. 

What Should You Spend On Marketing?

How much you spend on a marketing budget relates to the size of your business and the sector you occupy. Some industries are naturally ad-heavy, while others are much lighter. 

Most analysts make marketing budget recommendations based on company size. Small firms with less than fifty employees should spend between 7 and 8 percent of their revenues on marketing. Mid-size firms with between 50 and 250 people should spend around 10 percent, and large firms might be able to afford 15 percent. 

Of course, if your company is already being talked about endlessly in the news, you don’t have to spend a lot on marketing. The media is doing that already for you. Likewise, if you work with a very small number of eligible clients, mass marketing probably isn’t going to feature in your budget at all. It simply provides no benefits. 

By contrast, if you operate in a highly competitive industry with a lot of consumers, you may want to spend more on marketing. This way, you can increase your visibility versus your rivals. 

Consumer services tend to spend the most on marketing, averaging around 19 percent of their revenues. Following that are educational services, which spend around 12 percent of revenues on ads. After that, most other sectors spend between 8 and 9 percent, on average, getting their message across. Retail wholesale, manufacturing, and construction are all under 4 percent. 

How To Get The Most Out Of Your Marketing Budget

Spending money on marketing and getting results are two different things. Many firms believe that simply throwing money at the problem will lead to a solution, but that’s rarely the case. All marketing activities require careful oversight, monitoring, and review. 

No business wants to waste its marketing budget, so check out the following advice on how to spend yours wisely. 

Develop Your Marketing Strategy In Advance

Don’t go into a marketing campaign blind. Instead, carefully plan what you will do in advance. Consider everything from the channels you will use to the tactics you’ll employ to get customers to notice you and what you offer.

Create a marketing plan that will appeal to your audience, the type of people most likely to buy from you. Be strategic by considering your rival’s approaches and how you can circumvent them. 

Track The Performance Of Every Dollar 

Marketing budget spend should provide your firm with a healthy return on investment (ROI). You should get back three or four times the amount you put in in the form of higher revenues.

These days, you can use software to accurately track your marketing ROI through various channels. This shows you the return on your initial investment in real-time, allowing you to make quick decisions on whether the spending is worth it or not. Many of these tools are cloud-based, letting multiple managers make decisions about where to allocate funds next. 

Keep Changing Your Approach

While having a strategy in place is great, it also pays to allow it to change as conditions change. You may find that digital marketing offers you more flexibility than regular TV ads, even though they were a part of your original strategy. 

Try to adjust your approach based on the data you get. The more you can react and shift according to the information you get, the more targeted and effective your campaign will become. 

Use A Better Agency

Using a top marketing agency costs more, but it is also much more likely to yield results. Many beginner agencies use the cheapest freelancers they can find to write content and do SEO. That approach, though, is a race to the bottom, with the majority of work lacking quality. 

Top agencies, on the other hand, almost always employ people in-house. This way, they can deliver clients higher quality work and gain better oversight over the people in their firm. 

Why Do Small Businesses Spend A Lower Percentage Of Revenue On Marketing?

Small businesses tend to spend less on marketing than their larger counterparts because of their growth potential. A new company could become a thousand times bigger in the space of three years, while an existing industry stalwart might struggle to grow 10 percent.

Small businesses have a wider and longer runway, meaning that marketing doesn’t need to be as focused. Instead, firms can target just a couple of key channels and allow their small size to drive their growth tremendously. 

Once businesses become mid-sized, their attitude can change. Many adopt a “whatever it takes” attitude to enterprise, as long as they can grow their customer base. The problem with this approach is that it leads to debts long-term. Revenues simply can’t increase fast enough to counteract the new spending levels. 

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