Some of the most common marketing questions I get is around budget. How much should I spend on advertising? How much should I spend on marketing? What’s a reasonable budget to allocate for marketing agencies? What should I budget for digital ads?
And while the answer is usually “it depends,” there are some common guidelines I like to set to give a business a better idea of how much money they should be allocating for marketing.
Quite simply, your marketing budget should be around 2-8% of your revenue. Not 2-8% of your expense budget, but of your revenue.
Now, this can be a pretty hard number to swallow, especially if you’ve never contributed to marketing at all. In fact, 2-8% of your revenue may equal 100% of your profit! Don’t fear, if you’re not there yet, it’s okay. Slowly make your way towards fully-funded marketing, a half a percent at a time.
The thing that always amazes me, is once a business goes from spending 0% on marketing to 2% on marketing, they’ll gladly go to 8% because they’re beginning to see the fruits from their investments.
What expenses do you include with the marketing budget?
Let’s say you own a business with annual revenues of $10,000,000. 5% of revenue is $500,000. What does that $500,000 go towards? Does it include payroll and other non-advertising expenses?
Short answer is yes. Most businesses include marketing employees in their marketing expense calculation. Some even include sales employees in the budget, but few do this.
The majority of the 2-8% spend should be working marketing dollars. Meaning the budget is going towards buying advertising, paying agencies, and other marketing expenses (email marketing tools, lead generation efforts, trade shows, etc.).
Average Marketing Budget By Industry
Below is a list of average marketing budgets, as a percentage of revenue, by industry, according to a survey of CMOs:
- Banking, Finance, Insurance: 9.2%
- Communications/Media: 9.0%
- Consumer Packaged Goods: 9.1%
- Consumer Services: 18.9%
- Education: 12.0%
- Energy: 8.3%
- Healthcare: 9.0%
- Manufacturing: 2.4%
- Mining, Construction: 3.0%
- Service Consulting: 7.5%
- Retail, Wholesale: 4.4%
- Technology, Software, Biotech: 9.7%
- Transportation: 8.5%