It’s a common question that doesn’t have a simple answer. Business owners want to know how much they should spend (usually as little as possible) and marketing leaders want to know how much they should ask for (usually as much as possible).
Your marketing budget is a vital part of your annual strategy and sets the tone for what you’re going to achieve over the course of the year. Big goals usually don’t get accomplished with little checks. Happy with the status quo? Stick with the same budget you’ve used for the last decade and hope your competitors don’t pass you by. Cutting your marketing budget? Yikes.
The Rule of 10%
One starting point often suggested is to spend at least 10% of your organization’s total budget on marketing expenses. According to The CMO Survey by Deloitte, marketing budgets account for 11 percent of company budgets on average.
Companies in the consumer packaged goods industry spend much more on average than other industries. Industries that are more B2B focused tend to commit less of their overall budget to marketing.
Ten percent is a good starting place, especially for well established companies and brands. However, if you’re a company in growth mode and need to generate awareness of a new product or offering, you should consider doubling that figure.
In terms of percentage of revenue, companies spend an average of 7.5 percent of their revenue on marketing.
Set Goals Based on Benchmark Metrics
Depending on the complexity of your business, setting your marketing budget may be as simple as setting a goal of how many products you want to sell, knowing how much it costs to sell one product and doing the math from there.
Going this route requires having reliable data about your business. What is your average cost per sale? What is your conversion rate? What is the average annual value of a customer? How much profit are you earning on a single sale? Collecting meaningful data can be a tedious and frustrating process to get started but will pay dividends long-term and help you make effective marketing decisions.
Hiring or Outsourcing?
When you’re calculating the right amount to spend on marketing, take a moment to consider your sales goals for the upcoming year and the resources you have to achieve those goals.
Do you want to make a bigger commitment to creating original content for your brand, whether it’s written content, graphics or video? Is email marketing going to be a bigger focus for you? Will social media play a larger role in your strategic plan?
Whether you’re hiring internally for these roles or outsourcing to an agency, the talent needed for these marketing initiatives has a cost.
Hiring someone for your team can take longer and cost more than an agency but you’ll have someone committed to only your company. There are certainly benefits to having an employee focused on new ideas and executing solely for your brand, but that person’s skill set might be limited to one particular discipline.
Hiring an agency like Hook & Blade can get your marketing initiatives going faster and usually at a lower cost than a full-time employee. Sure, you might have to share time with other clients, but an agency can offer you a variety of talent in multiple disciplines more efficiently.
How much should I spend on advertising?
How does “as much as you can as long as it’s profitable?” sound? I’m only slightly joking. This is where reliable data about your business is absolutely vital. If you know you can consistently make $10,000 for every $1,000 you spend on advertising on a particular channel, wouldn’t you keep putting more money in the pot?
Budgets aren’t infinite and understanding your cost per lead/sale metrics for different channels can help you make decisions about advertising in new places. For example, a client of mine was considering a print ad in a local magazine that cost $6,000. Should they find the money in the budget to commit here? To put that figure in perspective, we took a look at our primary (and most efficient) driver of leads for the business: Google Adwords. In those campaigns, we knew we could consistently deliver leads at $60 or less. To match that return, we would need that magazine print ad to bring in 100 leads. We didn’t think that was likely so we opted against spending the money there.
If you have the right measurement tools in place and understand the analytics of your business, you can make your advertising cost decisions easily. If you know that you need a minimum of 50 leads a month from Adwords for your business to be successful and you know that your average cost per lead on Adwords is $100, then it’s simple math to set a budget of $5,000 per month for that channel.
If you haven’t spent money before on a particular platform, I suggest running a small pilot so you can develop the metrics necessary to make bigger budget decisions. And don’t forget to track it!
Set aside a fund for testing
Every year’s marketing budget should have some funds set aside to try something new. A willingness to test a new channel or tactic could bring big benefits to your brand. Sticking with the same strategies over and over might work in the short-term but you could find yourself surpassed by hungry competitors willing to innovate.
Regardless of how you come to that final figure, it’s important to have a strategic plan that aligns with your budgetary goals. Whether you have a $10 million budget or a $10,000 budget, if you don’t have a plan, you’re still wasting money.
This post originally appeared on co-founder Andy Morris’ Medium page.