How Much Should I Spend on Marketing?
This is one of the most common questions we get from clients. It’s a simple question with no straightforward answer. In other words, “it depends.”
I get it, it’s not the answer you want to hear. You would love to hear an exact number or formula that guarantees an exact ROI on every dollar spent. But that would be at best, misleading and at worse a straight-up lie.
There are too many variables to consider and it’s the wrong focus because marketing is bigger than just generating new leads for sales. So, to ask marketing alone to be responsible for dollars in and dollars out doesn’t make sense. The other reason why it’s difficult to give a simple answer about marketing budget allocation is that no two businesses are the same.
A common approach that CFOs use when setting a go-to-market budget that often includes sales and marketing spending is to aim for somewhere between 10-20 percent of the business’s annual revenue. But even within those parameters, there are nuances like the current environment of your industry, growth expectations, and your business model.
But let’s run with that thought as we talk about factors that impact marketing budget allocation.
What are your growth expectations?
Healthy growth for your company could look dramatically different from the business next door. It could be a 2 percent increase in revenue over the previous year, or, for some companies, it could be doubling revenue or getting acquired. Defining what healthy growth means for your organization will help you make the financial decisions that support that.
Here are a few questions for you to consider:
- In what time frame do we need to hit this goal?
- How long does it take for us to create and close a deal? Do our sales move fast enough to achieve our desired growth within our planned timeline?
- Who are our ideal buyers, and what motivates them to engage with us and consider our solutions?
What industry and business stage are you in?
The industry and growth stage that your business is in impacts how much you should allocate to your marketing budget. For example, an established multi-generation business that makes slim margins and has a very established market might invest only a small fraction of its revenue in marketing. It might make more sense for them to invest more in product development to improve margins. While a funded startup that doesn’t have any brand recognition would need to invest more in their ad spend to build brand awareness in a competitive market. As a percentage of its revenue, the investment of these two companies looks drastically different.
Are you a B2B, B2C, or Nonprofit Organization?
In a B2C environment, items are typically lower cost, direct response marketing is common, and it often requires less time to convert a customer. Investing in campaigns is the quickest and most cost-effective way to generate new business.
In a B2B environment, the sales cycle can be long and complex, often requiring 6-12 months. It involves many decision-makers and requires numerous multichannel marketing touchpoints to support decision-making. B2B companies, unlike many B2C businesses, split their overall go-to-market budget between sales and marketing to fuel a program that’s both multichannel and sophisticated. They need to invest in the right short-term sales activation activities as well as long-term brand-building activities. Both activities support sales but investing in brand building is much more valuable over time allowing the business to increase its prices, build brand preference, and scale.
In a nonprofit environment, there generally are no products or services and it’s about selling stories and capturing their audiences’ hearts while providing data to prove they are making a difference in the community. They are often seeking volunteers just as often as they are seeking donations. These two areas require completely different approaches and it’s considered tacky for a nonprofit to advertise for donations. So, their budget is usually mostly allocated to hosting paid fundraising events to encourage volunteers, cultivating relationships with donors, and collaborating with partners.
Now you can create a flexible budget that can be tweaked based on progress, performance, new opportunities, and the unexpected industry or global events. If 2020 taught us anything, it’s that the world can change quickly, the market’s expectations can change quickly, and our marketing budgets and plans must always be flexible and adaptable.
Omicle delivers brand clarity, marketing strategy, and operational efficiency to prepare leaders to scale their business. If you are ready to scale your business, contact us today to get started.
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