Budgeting How Much to Spend on Marketing?
We always ask new clients: “What’s your marketing budget?”
Usually, the answer is “I don’t know” or “give us a recommendation”…
If you don’t yet have a marketing budget established and are unsure of how much to allocate to marketing, here’s our quick answer:
You were probably expecting an “it depends” followed by a lot of caveats…
Well, here you go:
For small businesses with less than $5 million in annual revenue, the U.S. Small Business Administration recommends allocating 7-8% of your annual revenue to marketing. They also mention that “many” small businesses spend 2-3% of revenue & 3-5% for startups.
For larger businesses, the CMO Survey provide some useful information. In 2020, overall marketing budget as a percentage of firm revenue was 8.6%, while marketing budget as a percent of firm budget was 11.3%. For firms with sales revenue <$100 million, marketing spend as a % of budget was 14.3%.
Of course, the appropriate budget for your business depends on lots of things, such as your economic & business sectors, revenue and number of employees. Again, the CMO Survey provides the details:
Marketing budget by economic and business sectors as percentage of revenue. Firm and Industry Characteristics-Feb 2020-p.83
|Industry Sector||Percentage of Revenue|
|Banking, Finance, Insurance & Real Estate||15.8%|
|Tech, Software, Biotech||13.1%|
|Consumer Packaged Goods||7.7%|
|Number of Employees||Percentage of Revenue|
Marketing budget by number of employees as percentage of revenue. Firm and Industry Characteristics-Feb 2020-p.81
You might have noticed that most of these numbers are more than the 2% we recommended above. There are a couple of reasons why we recommend 2% as a starting point:
Reason #1: the Hawaii market is often smaller and less competitive than many mainland markets. We can often get away with spending a bit less.
Reason #2: if you’re looking for guidance on budget, then you probably don’t have a lot of your own data to base your decision on. That means you either haven’t done a ton of marketing to-date or haven’t really crunched the numbers. In that case, 2% is a solid target to get started without causing undue stress. As we develop your marketing strategy and start advertising your business, we’ll be able to run actual numbers to show the return on your investment. If you then decide to increase your marketing budget, the decision will be much easier!
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