What Should Your Business Spend on Marketing?

Many businesses struggle to arrive at a clear figure for the annual marketing budget.  How much should your business be spending?  0.5% or 15.0% of turnover?

One of the reasons it is difficult to set the budget is because there is no “right” answer, every business and market sector having different requirements.  Read on to find out how your business can arrive at a figure.

What do some businesses do?

Some do nothing, or very little.  Some business people think that if they provide excellent products or services, their reputation will bring the customers to their door.   Whilst that can work for very established businesses, growth is very slow if there is any!

Some businesses focus all their attention on servicing existing customers and don’t get round to new customer acquisition.  Fine in concept if it is bringing the growth you seek, but customers are frequently lost for a whole host of reasons outside of your control.  Of course, if you become too reliant for income on one client in particular, the risks are very high.

What do pro-active businesses seeking growth do?

Whilst there isn’t a definitive answer, there are useful guidelines.

Do you have a volume or a margin business?

Businesses driven by volume tend to spend a very small percentage of turnover on marketing, in part because their huge volumes generate significant sums and 1% of a lot of money will give a sizeable marketing budget.

For example, car manufacturers typically spend around 2.5% to 3.5% of turnover on marketing, alcoholic beverage manufacturers, 5.5% to 7.5% and packaged goods manufacturers, 4% to 10%.

Many service businesses are more margin orientated than volume and 5% is typical, though 8% and 12% are not unusual.

Business age and maturity is also important.  If your business is young, it needs to grow quickly and so you may need to spend a very high percentage of turnover on marketing for a couple of reasons.  Your turnover will be small and your need for rapid brand building and communication will be great.

Whilst this approach is simplistic, its strengths are that it is easy to arrive at and easy to plan for.

What are your business objectives?

An alternative approach is to decide upon your business objectives and the marketing strategy that is required to realise them.  Find out from a reputable provider what investment is required and then decide if you can afford it.  If you can – do it!  If you can’t, change your objective and adjust your strategy to make it affordable – then do it.

Alternatively, if you don’t have much to base your judgement on, a figure of 5% would be a good place to start.

The most important thing is to deliberately set aside a considered amount to promote your business and bring in more business.   Once you have run with that figure for a while you will develop a better understanding of its suitability to your requirements.  If you decide to go with the % of turnover approach, choose either last years’ figure or this years’ forecast.

But don’t take my word for it, further advice can be found here, or for a more scientific approach, try here.

Once you have a budget established, the question you need to answer isn’t “How much should we spend?” but rather, “How do we spend it most effectively?”

How do we spend the budget most effectively?

Again, there is no one-size-fits-all answer, for example, if you have a particular product or service aimed at a particular audience, then what communication strategies you need to adopt will be very different when compared to a more broad-based awareness raising campaign.  You will have your own ideas about how to reach people and talking to a marketing adviser will help.

One thing you and I are very aware of, in the words of Bob Dylan, is that, “the times they are a changing” and whilst display adversing in print was very important 10 years ago, in most situations, digital marketing gives a far better return on investment today.  There are a whole host of routes you can take, but take them you must.

If you would like any help or advice with your marketing strategy and implementation, please contact me.

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Nigel White
My career has given me insights into large and small businesses across many sectors. Academically, I have a MA (Strategic Marketing) and use this understanding to provide consultancy and advice to all clients I work with. Very high on my agenda: needs analysis, service, and quality.