How Much Should You Spend on Marketing? A Comprehensive Guide for Business Owners

Jonathan M. Gardey, MBA, CFA®, CFP®

President and Chief Executive Officer

As a business owner, determining the right amount to spend on marketing can be a daunting task. You know marketing is an investment in the growth of your business, but it can be tough to part ways with excess cash, especially in the early stages of your business. But that’s also why marketing should be worked into your budget as a fixed expense. It’s also why the amount you budget will be dependent on multiple factors like business size and industry, your goals and objectives, competitor analysis, and revenue.

Developing a marketing budget does more than just ensure you don’t overspend; it also helps you:

Prioritize which projects to invest in.
Compare year-over-year progress.
Calculate Return on Investment (ROI).
Show the value of proposed marketing projects.
Show positive ROI, which can help you determine your future marketing budgets.
Allocate funds for freelancers and full-time hires who’ll execute your strategy.

In this blog post, we'll explore how much you should spend on marketing each year and provide some planning and consulting tips for business owners at various stages in their career.

5 Factors to Consider When Creating a Marketing Budget

Business Size and Industry

The size and industry of your business play a significant role in determining your marketing budget. Larger businesses with more resources might allocate a higher percentage of their revenue to marketing, while smaller businesses may need to be more conservative with their spending. Additionally, businesses in highly competitive industries may require more aggressive marketing strategies and, therefore, bigger budgets.

2. Current Stage of Business

Where you’re at in your business journey will largely affect how much you need to generate new revenue. Older businesses who rely heavily on referrals may not feel the need to spend as much on marketing and advertising. But keep in mind, referrals come and go. You’ll want to ensure you’re keeping your pipeline full, so you don’t fall into the business owner trap of feast and famine. This can be really tough not just financially, but emotionally, as well.

3.Business Goals and Objectives—Understanding Your Customer Journey First

It is probably obvious that your marketing budget should always align with your overall business objectives. But, how do you know what those should be? Well, it starts with understanding your customer journey—how your customers go from product awareness to purchase. All journeys begin with awareness, then move to interest, and then to action. So, for example, if your goal is to increase brand awareness, you may need to invest more in content marketing and social media to build interest at the beginning of the journey. If you’re generating interest, but not moving folks to a sale, you may need to focus on generating interest and collecting leads with a sales funnel, targeted advertising, and email marketing. If you’re getting leads, but they aren’t qualified you may need to rework your brand message. Consulting a marketing professional will assist in identifying the gaps in your plan so you know where your marketing money will be best spent.

4. Business Goals and Objectives—How Fast Do You Want to Grow?

Similarly, you must ask yourself: Am I looking to grow as fast as humanly possible? Or will I be ok growing by just a few percentage points at a time? If you’re not in a hurry, you can rely more heavily on organic growth strategies which don’t require advertising spend. But if you’re looking to pour fuel on a fire and need to grow quickly, your marketing budget will need to be higher.

5. Marketing Channels and Strategies

Different marketing channels may require more financial investment than others, so you’ll want to choose the channels and strategies that resonate most with your target audience and yield the highest ROI. Then, you will be able to allocate your budget accordingly. Are you going to pay for content and handle implementation yourself? Or will you create the content and pay someone to help you with strategy? Consider the costs associated with each option (e.g., Pay Per Click (PPC) advertising, social media management, content creation, Search Engine Optimization (SEO), etc.) and use that to budget effectively.

So how much should I spend, already?

First, let’s see what the market trends say. According to Deloitte's Annual CMO Survey, marketing will comprise roughly 13.6% of a company’s total budget in 2023. That’s up 3.9% from the two previous years. Even with a recession looming, many marketers expect their annual budgets to increase in 2023. Traditional advertising will also make up less of 2023’s marketing budget, Deloitte reports, shrinking by 0.7%. Instead, marketers plan to spend more money on social media and new media platforms.

Now, the budgets also range widely from B2B (business to business) and B2C (business to consumer) and between service-based and product-based businesses. B2B product industries allocate, on average, roughly 7.8% of revenue to marketing. This is similar to B2C services (6.5%) and B2B services (5.9%). B2C Product allocates the highest amount at 15.1% of total revenue.

As you can see, decisions as they relate to marketing budget allocation remain very industry specific. A common rule of thumb is to allocate between 7% and 12% of your gross revenue on marketing efforts. For new businesses, this percentage might be even higher, at around 15% to 20%.

Doing some market research to see how much other businesses of your size in your industry are spending can be a guide. Keep in mind that you don't need to match their spending dollar for dollar, but rather focus on allocating your resources effectively to maximize your return.

Manage Your Marketing Budget the Right Way

Of course, your marketing budget cannot exceed the amount that your revenue allows. If you aren’t yet profitable or are struggling to make business ends meet month to month, putting 12-15% of your revenue aside might put you in a worse position financially. This is why we recommend working with a financial advisor who can help you analyze your Profit and Loss statements, organize your cash flow, and see what you can reasonably afford to invest back into your business at this time.

If you are looking for a financial ally who is well-versed in guiding business owners and their families, we encourage you to visit our site, learn more about our services, and see if Gardey Financial Advisors could be a good match. Contact us to learn more. We best serve clients looking for exceptional client service, who value a long-term partnership, and have a minimum of $500,000 in investable assets.

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