There’s nothing worse than the dreaded “B” word.
Budget. Large businesses scoff at it. Mid-sized companies despise it. And small businesses are straight up allergic to it. But the truth is, without a marketing budget you cannot plan for the future. And without looking forward, you’ll end up falling behind.
Marketing is an investment — one that you can bet your competitors are making. It is not a cost. In business (and life), you are either getting better or you are getting worse, there is no stagnant position.
There is no one-size-fits-all for a marketing budget. Depending on factors like the size of your company, how much revenue you generate, and profit margins, your marketing budget will vary greatly.
How much should I spend if I’m a startup?
If you’re a startup, you should spend 20-25% of your annual revenue on marketing. Startups often have to face the harsh reality that in order to get their business off the ground, they’ll have to allocate a much larger percentage of their revenue towards marketing.
That’s right, as a startup your annual marketing budget should be based on your gross revenue rather than net profit. This is because most startups don’t achieve profit right off the bat.
Furthermore, when you’re just starting out, no one knows who you are. You might have the greatest product on the planet, but if know one knows it exists, it may as well be Betamax. When you’re in startup mode, it’s all about connections, exposure, exposure, and more exposure — i.e. marketing.
How much should I spend if I own a small business?
As a small business owner, you should spend 3-10% of your annual revenue on marketing. To be more specific, if your business is generating $5-10 million in revenue, and your profit margins are near 10-12%, Forbes recommends spending 7-8% of gross revenue on marketing, split between brand development (websites, blogs and social media content, collateral, etc.) and campaigns.
But you have to know what your goals are. Are you in growth mode — where revenue is needed right away? Or are you in planning mode — where steady development is more important than revenue spikes? Depending on where your business stands, you may have to adjust your marketing budget to fit your goals.
What if I need marketing for a mid-sized business?
Mid-sized businesses should be spending 9-11% of revenue on marketing. Although your mid-sized business is typically lumped into the “small-to-midsize-business” category, there are distinct differences — like your company’s annual revenue and number of employees. A midsize business is categorized as having an annual revenue of $50 million to $1 billion. That is an incredibly large range.
Depending on where your business sits, you likely have the budget for marketing but don’t have the internal manpower to fully utilize your spend.
Hiring a marketing employee or two may help you with one or two aspects of your marketing such as social media or PR. However, it’s hard to develop a well-rounded (dare we say “holistic”) marketing strategy without hiring an entire marketing department. For that reason, mid-sized businesses are perfect candidates for working with a marketing agency.
Outsourcing your marketing to an agency when you are in mid-sized business limbo will help you in three ways:
1. You will be able to maximize the ROI of your marketing spend by hiring a full-service, cross-functional team of experts who are dedicated to reaching your business goals.
2. Having an entire marketing department at your fingertips costs the same as hiring a few full-time employees.
3. Lastly, working with an agency enables you to quickly scale up or down if your needs change without worrying about needing to lay off or hire employees.
I’m an enterprise, how much should I be allocating to my marketing budget?
Large enterprises should be spending around 6-12% on marketing. As an enterprise, you don’t need to spend as large of a percentage, but your overall marketing budget will be higher because of your increased gross revenue.
Most enterprise companies hire agencies with a focus on developing large-scale content campaigns. Most companies at your level already have brand name recognition, so marketing strategy centers on maintaining status and market share in the industry.
So, now what?
After you’ve determined the appropriate percentage of revenue to spend on marketing, you have to figure out where your business stands, what your goals are, and how you plan to reach them.
There are many different methods for creating a marketing budget. The dollar approach, percentage of sales, matching your competitors, marketing objective approach — all of these are worth taking a look at to help guide your decision.
But one thing that is for certain, doing nothing doesn’t mean you stay where you are. While you’re standing still, everyone else is moving forward. Get after it.
Written by: Sam Calcagno, Content Creator. Macleod & Co. is a premier full-service Twin Cities marketing agency, with a special emphasis on digital, brand and the strategy that unites the two. We partner with businesses of all shapes and sizes, from startup hustlers to established empires, to create and execute strategies that deliver results.