How Much Should I Invest in Marketing?

Marketing budget

Although there’s no easy answer, the old adage is true: You have to spend money to make money. No matter the size of your company, marketing is essential to your success and growth. Of course, some companies get started through word of mouth, but they may stall after a while, after the initial excitement dies down.

Yet, even some companies that invest in their marketing fail because they’re not properly budgeting for the right marketing activity. They may not allocate enough money or, worse, spend it unwisely.

But how do you know how much money you should invest in marketing? And how can you spend it effectively? Check out our tips on how much to best invest your marketing dollars and how to follow a marketing plan.

So how much should you invest in marketing?

According to the 2019 CMO Survey, overall, companies spent an average of 8.3% of their total revenue on marketing each year between 2011-2019.

Marketing budget as a percent of firm revenue
Marketing budget as a percent of firm revenue

Interestingly, marketing spending varies by sector. Based on the same survey, here’s how marketing professionals allocated their marketing budget for 2018-2019.

Marketing budget as a percent of revenue by sector
Marketing budget as a percent of revenue – by sector

As you can see, Business-to-Business companies spent 8.6% of their total revenue on marketing, while Business-to-Consumer firms spent considerably more.

Predictably, the total revenue of a company also influences its marketing spending, but maybe not how you’d think:

How companies spend on marketing by sales revenue
How companies spend on marketing – by sales revenue

It’s clear that smaller companies tend to spend more money as a percentage of their total revenue than firms with higher revenues.

Tips on how to allocate your marketing budget

  • Small businesses should aim to allocate 7-12% of their revenues to marketing.
  • B2Cs should generally spend more on marketing than B2Bs.
  • Smaller companies also can expect to spend more on marketing as a percentage of their total revenue compared to larger firms.
  • The budget should cover all marketing expenses: from brand development (marketing staff, website, social media, etc.) to direct promotion (advertising, sponsorships, etc.).
  • Allocation can depend on your industry, the size of your business, and its growth stage.
  • Knowing how much and how quickly you want to grow is also important. In general, during their early brand building years, startups should expect to spend much more than older businesses on marketing.
  • More mature businesses tend to slow their marketing spend, which they invest into smarter methods.
  • Factors that influence a marketing budget can also include new product/service launches, new market entries, and mergers and acquisitions. Adjust your percent-of-revenue calculation to take these events into account.
  • A business that has multiple products/services may have to allocate its marketing spend differently based on each product’s market status.

Measure your success

Don’t blindly push forward with your marketing plan without regularly measuring your success. Use metrics to calculate your marketing tactics’ hits and misses. Remember, measures can be reviewed as global, across multiple tactics, and specific to each tactic.

Essential marketing metrics to follow include:

  • Revenue — Look at how much revenue each channel is generating
  • Cost per lead — Calculate how much is invested per lead for each marketing channel
  • Website traffic relative to leads and customers — You might have a lot of unique website visitors, but are enough leads converting?
  • Landing page conversion rates — Do you need to better optimize your landing pages for conversions?
  • Customer lifetime value — How many of your customers remain loyal to your business?

Also, note that some marketing tactics require a longer term than others for effective ROI. For example, a branding strategy requires a longer period to see results than a lead-generation strategy.

Normally, the longer a marketing tactic is underway, the better results it delivers. Think of the snowball effect. Yet, tactics should not be attempted haphazardly. They should be coordinated, diversified and cover the right audiences with the right messages.

Developing a Marketing Plan

You know you should always be marketing to potential customers as well as existing. But to do that, it’s important to spend your marketing budget wisely. Once you know how much you have to spend, develop a marketing strategy on where to put it and what you want to achieve.

Paid digital media budget allocation
Paid digital media budget allocation – 2019 CMO Survey

The key is to find the vehicles that work best for your target market; is that digital, newspaper, print, TV commercials, etc.? One specific activity is not enough. What will bring you success is a cross-section of marketing strategies. It’s the small things that add up when put together. Reinvest in the vehicles that work and disregard any that are not returning a profit.

Be realistic. If your budget can’t cover everything in your marketing plan, look for ways to do more with less. For example, try running fewer paid ads and focus on organic social media campaigns and SEO.

Now, where do you think your marketing budget should go? Do you want to reach as many customers as possible, but you don’t have a complete marketing plan? We can do the strategizing for you. Give us a call if we can help you reach your business goals!