How Much Should You Spend on Marketing?

How Much Should You Spend on Marketing?

The question of how much you should spend on marketing is one that two types of people would ask.

The first would be the marketers themselves. Marketers need to pitch the senior management regarding the budget they need for a certain period. If the budget needs to be increased, the marketers have to present a compelling pitch in front of the company's top-level management. They are the decision-makers.

This brings us to the second type of people. So often, these decision-makers view marketing as an outward, intangible expenditure. There's nothing they would love more than further reducing that expense.

In this blog, we will talk about the major factors you need to consider before allocating a percentage of your revenue to marketing.

Why Does Your Marketing Budget Matter?

Have you ever wondered why Apple has an entirely different pricing structure than their industry standard? Sure, their products are great, but what makes people buy them in the first place?

Or how has Red Bull become synonymous with motor racing sports, owing to their exponential growth over the years?

The answer is - great marketing!

Budgeting is vital for marketers to plan out campaigns for a certain period because those in charge of approving that budget often regard marketing as a surplus expense. They know they need it, but the lesser costs incurred without any detrimental effect, the better.

However, marketing has a significant role to play! It's the one field that has a direct relation to your bottom line - churning up profits. Simply put - your marketing investment today could very well be your revenue tomorrow.

Let's go back to Apple once again. The smartphone giant didn't settle for an industry average pricing model. In fact, they went a step ahead and created that extra bit of demand for their mobile phones, all due to excellent marketing. Excellent marketing is how Apple products are today regarded as a near-status symbol.

Similarly, Red Bull is an energy drink. If they had adhered to their industry average, we wouldn't see their name in Formula 1 or Moto GP, and they definitely wouldn't own professional football clubs.

So this is a question for the decision-makers to answer - how does your business look if you can attract more leads and customers by increasing your budget? Conversely, what does your business stand to lose if you slash the marketing budget?

If you invest more in marketing, is it helping your brand grow at a faster rate than your competitors? Are you meeting your KPIs faster?

And if you underspend, what happens when your business can't meet its revenue goals ? Will it result in a significant losses? Or will it be manageable in the face of a looming unforeseen expenditure?

The answers to these questions may very well be the answer to how much you should spend on marketing.

Tips for Assigning a Marketing Budget

For small businesses or start-ups, this choice often boils down to the company's objectives and revenue. Here are a few tips to keep in mind before assigning a marketing budget for your SME:

• ● Industry Average: How much are your competitors paying? Knowing the industry trends will help you understand the efforts your top competitors are putting in. While we don't suggest shadowing their effort as a sustainable approach, it's an excellent place to start.
• ● Be Clear on Your Goals: Marketing is all about setting goals, goals with real-time and measurable results. Do you want more customer acquisition with your marketing campaigns? Or are you encouraging your prospects to try out a free sample of your product? Knowing your business goals will help you ascertain what you must do and how much you should spend to achieve those objectives.
• ● Measure Performance: Without measuring the effectiveness of your campaigns, you won't be able to determine your actual ROI. Remember to measure the metrics that are related to your marketing objective. For example, if your business goal is more customer acquisition, keep track of your lead generation campaigns or web traffic volume.
• ● Optimize Continuously:With all this data at hand, you'll be able to create a marketing budget more efficiently for your annual or quarterly periods. Analyze each spend made and determine if that particular campaign helped you meet your goals. Remember to consider the ROI of all your marketing spending. Optimize where necessary, and cut down where possible.
• ● Follow-up: Many top-level executives fail to integrate the inputs of their sales team. The need to guide your sales and advertising teams is more fundamental to achieving your goals than setting budgets. Your sales and marketing teams must always receive strategic direction and be privy to important information such as business strategy, product launch calendars, event schedules, etc.

So, How Much Should You Spend on Marketing?

The commonly accepted budget for marketing in B2B companies is around 5% of their revenue. In B2C companies, this figure slightly increases to 10%, owing to the multiple channels these businesses must target in order to reach their customers.

Deloitte conducted a survey in 2022 with 314 senior marketers regarding their advertising spend. Here are the main takeaways from the survey:

• ● The report found that B2B companies spent the least percentage of their revenue on advertising at 9.4%. Comparatively, B2C companies had an average spend of 14.2%.
• ● An interesting finding was that while B2B product companies spent less, B2B service companies spent more on marketing than B2C service companies. The figures stood at 10% for B2B service companies as against 8.7% for B2C service companies.
• ● Certain sectors, such as consumer packaged goods, outspent every other industry with a whopping 21.7% budget allocation to marketing.

Note: The COVID-19 pandemic affected the budget of businesses worldwide. Many SMEs have still not recovered from their losses during the period. Understandably, their spending on marketing is also yet to recover to pre-pandemic levels.

Need Help?

If you need professional assistance from a team that understands your business objectives and can scale your ad budgets as and when required, contact us.

We'd love to help you meet your goals with ROI-focused marketing campaigns.