As a consultant, the one question I am repeatedly asked is, “How much should I be spending on marketing?” In true consultant fashion, I offer the same vague answer each time, “It depends.”

As eye roll inducing as that answer is, a marketing budget depends on how much spending is required in order to obtain company objectives. Marketing is a crucial function of any business and to ensure that expenses translate into results, it’s important that the right amount be spent on the right activities.

The following chart offers a simplistic breakdown of marketing expenses compared to gross sales and profit margin that we use as a benchmark at Crew (excluding salaries):

Also, there are three factors to consider in setting the right marketing budget:

Business Stage

A business in a start-up, growth or expansion phase will typically incur a higher percentage of marketing expenses initially as upfront costs for brand development, packaging, website, and launching a campaign for the first time can be very high. Whereas a business in a maintenance stage should be spending three percent or less of gross sales on marketing, which will often be directed towards customer retention or new product innovation.

Consumer vs. Business Audience

Business-to-Consumer organizations will usually need to spend more than Business-to-Business organizations. B-to-C brands have a much broader and larger target audience that can geographically dispersed which means that communicating with them through media (digital, TV, Out-of-Home, etc.) are more expensive. However, B-to-B organizations should still be cognizant of not underestimating their marketing needs and appropriate budget especially if considering tradeshows, leveraging association memberships or relationship building expenses.

Product or Service Price Point

The higher the price of an item or the longer the sales cycle and the higher the marketing budget required. As a general rule, higher priced items or services require more touch points to the target audience to influence a purchase decision. After all, buying a new BBQ/grill is a far more complicated decision than buying a coffee.

Get the Proper Advice

Marketing can be very expensive and it’s easy to spend money quickly. After more than 15 years of consulting with businesses, I often have conversations with entrepreneurs who have felt their marketing budgets in the past were poorly spent. They rebranded when they didn’t need to. They supported a campaign that fell flat. They launched a product that bombed. This can make them gun shy going forward and can create mistrust towards marketing teams and agencies. And for good reason. It’s their money and they need a positive ROI.

Every marketing team should be accountable to measurable results. Ensure you are clear with the results that are needed and you have alignment to the goals upfront. No marketer will ever hit 100% in business, but they should be very clear with the strategy, process, and resources needed to give the brand the best chance to win.  

When you have more questions on setting the right marketing budget for your organization or need a second opinion, give us a call. We’d love to help.