How aggressively do you want to grow your business? Have your revenues been steadily growing? Or steadily declining? Once you know the answer to those questions, then you can determine how much you should budget for marketing. In the video below, I answer the question of how much you should budget on your marketing.
So, like I said in the video, if you want to see steady growth, spend 4 to 10% of your gross revenue each month on your marketing efforts. If you want aggressive growth, you may need to spend as much as 14 to 20% per month. According the SBA’s How to Calculate your Marketing Budget article,
Many businesses allocate a percentage of actual or projected gross revenues – usually between 2-3 percent for run-rate marketing and up to 3-5 percent for start-up marketing. But the allocation actually depends on several factors: the industry you’re in, the size of your business, and its growth stage. For example, during the early brand building years retail businesses spend much more than other businesses on marketing – up to 20 percent of sales.
As a general rule, small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing. This budget should be split between 1) brand development costs (which includes all the channels you use to promote your brand such as your website, blogs, sales collateral, etc.), and 2) the costs of promoting your business (campaigns, advertising, events, etc.).
This percentage also assumes you have margins in the range of 10-12 percent (after you’ve covered your other expenses, including marketing).
If your margins are lower than this, then you might consider eating more of the costs of doing business by lowering your overall margins and allocating additional spending to marketing. It’s a tough call, but your marketing budget should never be based on just what’s left over once all your other business expenses are covered.
Believe it or not, marketing is actually a science. After 20 years of doing this, I have figured out that there are exact formulas for marketing that work every time. Each business has its own unique traits, but the science of marketing dictates that if you do X then you will always get Y. For example, we know that if we reach out to 100 people each week, we will bring in $X revenue each month. So if we want to increase our revenue, we know that we need to increase that amount by however many times we want to see revenue jumps.
At Suite 4, we also have a scientific way to help you determine how much you should budget on your marketing with our Marketing Budget Calculator. You just give us a little bit of info on what you’re currently spending on your marketing, what your average monthly revenue is and what your revenue goals are. We then take those numbers, and we can tell you your revenue per marketing dollar spent as well as how much you should be spending to hit your revenue goals. We can also give you some ideas about exactly where your high pay-off areas are to invest in marketing for the biggest return.