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February 24, 2023 (Updated: March 8, 2023)
How often do you think about your marketing budget? Does your team find itself running out of cash flow quickly and having to scrimp and save throughout the year? Or is your team rolling in dough and trying to find new ways to spend your surplus? In either case, your marketing budget could benefit from a readjustment. But what percentage of revenue should you spend on marketing? We’re looking at all the factors that affect your business to find out:
Don’t confuse revenue with profit. Revenue is the total amount of income your company makes from its operations. It’s interchangeable with the word “sales.” The money you make from the number of sales you make gives you your total revenue. One of the simplest formulas to calculate revenue is:
R = p * u
In this formula, R is the total revenue, p is the average sales price of a product or service, and u is the number of units sold.
If your company isn’t making any money, you don’t have any to spend on your marketing—or anything else. Your revenue is an indicator of your business’s health. Think about that concept in terms of your own mental or physical health. When you have a cold or when something stressful weighs on your mind, you can’t dedicate 100% of yourself to normal tasks. You might forget to take out the garbage this week. Or, instead of making a home-cooked meal you get takeout so it’s one less thing you have to worry about.
The same goes for your business operations. When you’re making less revenue, you don’t have as much money to dedicate to all the projects and activities you want. And because the entire purpose of marketing is to increase your sales, which increases your revenue, what you spend on marketing directly relates to the money your company brings in. Your marketing budget should be directly proportionate to your revenue since they go hand-in-hand. But what proportion that is depends on different factors of your business.
Choosing the right revenue percentage for your budget isn’t a one-size-fits-all approach. It’s important to consider different factors about your brand to choose the right choice for your company. Here are some areas to consider when allocating your revenue:
In 2020, Deloitte conducted a survey that broke down what percentage of revenue businesses in each industry should be spending on marketing. Aside from the industry, it also considered other factors we’ve included in our list, such as the state of the economy and the brand’s customer volume. Here are the study’s findings from the lowest to highest percentages:
The industry affects your revenue and budget because the way consumers interact with and shop from each one differs. Nearly everyone needs energy and utility services. And depending on where you live or work, you only have certain options for providers. It doesn’t make sense for companies in that industry to spend tons of revenue on marketing. But for tech companies with high competition and a vast audience? They really need to get their information in front of the right people and prove why they’re better than the competition.
Related: What Is the Typical Marketing Budget Percentage by Industry
Big businesses are always going to have more revenue to spend on marketing than small ones. It’s the law of averages. For Apple, tossing 21% of its revenue (or more) into marketing is nothing. But for a new software or app startup, 21% of revenue could really eat away at other things the company wants to accomplish, like growing its team or scaling research and development.
Some sources say that marketing experts and agencies recommend small businesses spend between 7% and 8% of revenue on marketing. True startups might spend between 3% and 5% of revenue until they become more established. Medium and large businesses can obviously allocate more revenue to marketing because they make more. With larger businesses, they may be more likely to follow the industry recommendations instead.
Where you do business also affects how much of your revenue you should put into marketing. While the global economy factors into how much money your company makes, so do your local, state, and national economies. If the people you’re marketing to don’t have a lot of money to spend, you probably won’t dedicate as much money to marketing. Instead of a constant ad push, you might spend less money on fewer but more targeted campaigns to do the trick.
The location of your business storefront or headquarters also matters. For example, the Business Development Bank of Canada (BDC) recommends that B2B companies spend between 2% and 5% of revenue on marketing and B2C companies spend between 5% and 10%. But that might not be the case in the United States or the UK.
A more recent 2022 Deloitte survey suggests that marketing should be about 13.6% of a company’s total budget in 2023, no matter if it’s B2B or B2C. That number went up 3.9% from 2021. But you know what else went up? Inflation, and the cost of literally everything else. It’s important to know the financial state of not just your industry, but larger economies. This information helps you stay aware of changes and adjust your budget accordingly.
Related: The 5-Step External Marketing Audit Process
How many customers do you serve daily, monthly, or yearly? Are you trying to attract more, keep the ones you’ve got, or both? In marketing, it actually costs more to attract new customers to your brand than it does to keep existing ones. If one of your primary marketing goals is to bring new people to your brand, you’ll likely want to put more revenue into your campaigns. The exact percentage should vary based on your KPIs of the number of new customers you want to attract.
What kind of partnerships does your brand have with other industry leaders, influencers, or content publishers? The more paid partnerships you have, the more revenue you’ll need to put toward marketing. But not all marketing partnerships require payment. Some influencers work for discount codes and free products. News outlets often publish your press releases for free, yet they’re still considered media partnerships. The more “free” partnership opportunities you have, the less revenue you may have to put into your marketing budget while still getting more reach and attention from your audience.
What type of marketing do you expect to do? The more expensive your marketing activities, the more revenue you’ll have to set aside to make them happen. Paid advertising, paid partnerships, and traditional non-digital marketing typically have a higher price tag. Activities like content marketing and SEO may require more team members, but less revenue spent to complete the actual campaigns and projects.
Related: Content Marketing vs Traditional Advertising: What’s the Difference?
Based on an average of the Deloitte recommended 13-industry allocation above, any company can expect to set aside about 10% of its revenue for marketing activities. If that number sounds high or low to you, don’t worry. No matter what industry your brand falls in, it’s important to use this data as a guideline, not an absolute goal for your company budget.
Truthfully, we, or anyone else, can’t tell you how much of your revenue your brand should set aside for its marketing budget. Only your company leadership and financial advisors can decide what percentage is right. Every company is different. You’re not even going to have the exact same revenue allocation as your closest competitor. For example, if all your brand’s characteristics point to a low revenue percentage, but you have extra money to spend, go for it.
Spending above your niche average on your marketing campaigns could help your brand stand out against the competitive landscape. And positioning your brand above the competition further grows brand awareness, presence, and prominence in your industry.