How Much to Spend on Marketing

How Much are You Spending on Marketing?

Marketing budget cartoonThe amount small businesses should be spending on marketing and what they actually spend are two different numbers – but not in the way you might think.

The U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales and your net profit margin – after all expenses – is 10 to 12 percent.

But a 2014 Gartner Research study showed that successful businesses are actually spending more than this. Here’s what they are really spending:

  • B2B product businesses: 10.6%
  • B2B service businesses: 10.1%
  • B2C service businesses: 10.9%
  • And B2C product businesses are spending as much as 16.3%

Companies spend money on marketing because it impacts on the bottom line. Hard!

The amount each company spends differs according to factors such as business type, revenue and growth goals, but the message is clear: spending less than 10% of your revenue isn’t going to cut it.

In order to see growth, companies – especially companies in their growth phase – need to invest heavily in the mechanism that promotes, sells and creates this growth. That mechanism is marketing.

Regrettably, the first thing to be cut when times are tough is the very method of gaining business – marketing.

Marketing is not a luxury item or one that should be pursued only in the good times. Because it really matters in the tough times and you need a constant source of new business, good times or bad.

Takeaway: find out how much of your annual revenue over the past five years has been spent on marketing. If it is less than 10 percent, consider increasing this over a period of time until you reach the magic number.

If you would like assistance with planning your marketing spend, talk to us. We’ll make sure your hard-earned money isn’t wasted!