Marketing a brand is more than just creating awareness about the product or service. Thanks to the advent of digital media, marketing is no longer limited to one-way communication. Social media platforms serve as active marketing channels for businesses, allowing customers to directly reach out to share feedback. This is where brands have to be extremely careful. Positive reviews can scale up the popularity of a brand in no time, while negative feedback can hasten its downfall. Brand marketing under professional supervision is the solution to this problem, so you don’t have to be left alone wondering “what should my marketing budget be?”
Marketing is about promoting your brand in a positive light to build awareness, credibility, and interest among prospective customers. It’s not just about increasing sales. With numerous options to reach potential customers, marketing has become imperative for lead generation, attracting investors, and boosting conversion rates. Running a business without marketing is like trying to drive a car without fuel.
So, if you’re trying to figure out the right marketing budget for your business, read on. This article discusses all aspects of the marketing budget to answer the question “how much should a small business budget for marketing be?” Or what is the average marketing budget for any business?
Why do you need a Marketing budget?
Now that you have realized the importance of marketing in a business, the next question is: What should my marketing budget be? This is a common consideration among companies who haven’t yet immersed themselves in the nuanced world of digital marketing. Sometimes brands might think that since business is thriving, it’s fine to have a small marketing budget. This isn’t the case. The impact of having poor or inadequate marketing will impact the business adversely later if not sooner.
On the other hand, some businesses might think spending a huge, unchecked amount on marketing will boost growth faster. This can be just as detrimental, as it can negatively impact capital in the long run. Having a standard marketing budget not only helps a business run smoothly, but makes it easy to plan a killer marketing strategy.
What does a marketing budget include?
Considering the endless options of both on and offline marketing channels, brand marketing cannot be limited to advertisements only. A marketing budget can include expenses on, but not limited to:
- Website design and maintenance
- Social media promotions
- Search engine optimization (SEO)
- Email Marketing
- Paid Advertising
- Google Ads
- Magazine Ads
- TV Commercials
Apart from these main elements, companies should also factor in the cost regarding hiring a professional to figure out a marketing strategy. Their guidance can help decide what amount from the total marketing budget will be spent on each area.
What is the average marketing budget?
The average marketing budget for any business should be anywhere between 2 to 10 percent of the annual revenue. This applies to the marketing budget for small businesses as well, but there are certain factors to consider. The 2 to 10 percent range is common in any type of business and thus considered an average marketing budget for businesses in general.
To simplify the calculation, here is an example. For instance, if your business generates annual revenue of $1 million then the average marketing budget can safely be somewhere around $20k to $100K. The range can go higher depending on the type of business and its marketing goals like traffic, awareness, sales, conversion rate, etc.
How much should a small business budget for marketing be?
The marketing budget for small businesses is crucial because they need both visibility and collateral investments. While a low marketing budget can slow down growth, higher spending on marketing can impact the capital. According to the U.S. Small Business Administration, the marketing budget for small businesses should be between 7 to 8 percent of gross revenue.
A business generating annual revenue under $5 million from sales with a net profit margin of 10 to 12 percent is considered a small business by U.S. Small Business Administration. The calculation might change if you consider the marketing budget for start-ups. This is because start-ups are going through the most challenging phase of a business where budget constraints are a common issue. This is where the marketing budget for small businesses and start-ups differs.
For start-ups, it is advisable to allocate only 2 to 3 percent of annual revenue in marketing and promotions. However, considering the type of business and its marketing purpose, a broader margin of 1 to 10 percent of the annual revenue is possible for the marketing budget.
What is the average marketing budget for big companies?
The figure differs when it comes to the average marketing budget for big companies. A look into the percentage paid to the affiliates of global corporations like Amazon and Google might provide a clearer idea. Google pays up to 40 percent of the profit to the affiliate who brings revenue to them. While in Amazon, the calculation is slightly lower because of its extensive online presence and dominance over digital platforms.
At big corporations, the average marketing budget can reach 25 to 45% of annual revenue for new product launches. For SaaS companies, the marketing budget can be almost half of the annual revenue depending on their marketing goals. In some cases, the annual marketing budget for SaaS companies can be around 80 to 120 percent of revenue. It then plateaus gradually through a lesser percentage of marketing budgets in the following 5 years.
What should my marketing budget be?
For any business showing promising growth, the average marketing budget should be between 2 to 10 percent of annual revenue. This is the standard calculation of the U.S. Small Business Administration and is highly recommended for any business that is still in its developing phase. To be more exact, the range can vary between 4 to 6 percent and not beyond or below it.
Some companies might spend up to 20% of net sales as a marketing budget, but only if they have specific goals. The exact calculation of the marketing budget depends on different criteria of the business apart from marketing goals.
Factors to consider while deciding the marketing budget
The factors that determine the percentage of marketing budget to be allotted are crucial for any business. In fact, it’s the first step in any business to figure these out before asking “What should my marketing budget be?”
Below are those determining factors of marketing budget that more or less are common to any kind of business.
Different types of businesses can have different ranges to calculate marketing budget. For instance, a B2B should spend less on a marketing budget compared to a B2C company. This is because a B2B company has specific customers it wants to reach, and usually knows how to attract them.
For a B2C company, the customer base is not specified and generally involves a larger section of consumers. They need a higher marketing budget to promote on various channels to reach all segments of potential customers.
As mentioned earlier, the size of the business is crucial to determine the marketing budget from the annual revenue.
For start-ups, the marketing budget can be a huge constraint. It’s advisable to keep the percentage lower, but not zero. This is because marketing is an important tool to boost growth through sales and build brand awareness. Medium-size businesses can risk a higher percentage on marketing budget depending on its focus. For large corporations with more capital, there isn’t necessarily a set limit on the marketing budget. A higher marketing budget can be balanced with increased sales and conversation rates.
Every marketing campaign should have a clear goal to effectively plan out its strategies. For instance, launching a new range of cosmetics might need visibility across all marketing platforms. Whereas launching an app or any software will have more focus on digital marketing platforms.
Apart from the target audience, there is another way in which the marketing goal can impact the marketing budget: the expected result from the campaign. Some marketing strategies may be solely planned to generate leads and increase conversion rates, while others may be targeted at building brand credibility, creating awareness, or getting customer feedback. Depending on the target result, the marketing strategy decides the focus and the budget it will require.
The marketing budget for businesses is only one of the mandatory expenses companies should consider to scale up. Generally, companies have to take into account several other expenditures also like employee salaries, infrastructure, product development, and more. The percentage allotted for the marketing budget should not impact any of these expenditures.
With this, you’re hopefully able to answer “What should my marketing budget be?” Or “how much should a small business budget for marketing be?” Considering all the points discussed above, small businesses and developing companies can safely and effectively plan a marketing budget.