Deciding on a marketing budget is a pivotal moment for every company, and dependent on a host of variables. You may be struggling against a new competitor, launching a new product, extending awareness of your brand into broader markets, or just maintaining your current position. There is always a balance point between meeting your goals and minimizing excessive spending. This guide explores marketing budget allocation nuances, providing insights for optimizing marketing investments.
Understanding the Role of Marketing in Business Growth
Marketing, in its broadest sense, encompasses every growth driver your business could employ! Advertising, reputation management, partnerships, and even customer service when it's used to drive repeat sales fall under the large umbrella that is marketing. All these tactics rely on authentic and persistent brand identity creation, relationship establishment, and effective value communication. The digital era has broadened marketing's scope, incorporating diverse media– from traditional ads to digital campaigns and social media– but the fundamental mechanics of marketing remain the same. Higher productivity and increased efficiency can be achieved in a variety of ways, but there is no growth without marketing.
The Paradigm Shift of Digital Marketing
Digital marketing's efficiency and cost-effectiveness have prompted a significant budget reallocation towards digital channels, revolutionizing strategies and outreach methods. Digital advertising tactics can be created– and pivoted– very quickly. And the capacity to test almost any component of a campaign– from messaging and creative images to targeting and timing– without the time and expense of printing means you're not betting all your marketing dollars on just one idea. You can test multiple ideas for less money (and time) and then double down on the winning combination.
Factors Influencing Marketing Budgets
You cannot set your marketing budget in a vacuum: business size, industry, target market, and objectives significantly dictate marketing expenditure, varying across different business scales and sectors. Especially on digital and online platforms, you will often compete for the attention of your audience in a bid-based advertising ecosystem, where competitors from across the country (or globe) that "outweigh" you in scale could raise the premium on ad space by bidding more dollars for it. This means there can be a minimum threshold to making a real splash in your marketing, and spending an amount under that will be a waste of resources.
The good news is we can point to some solid average percentages of gross revenue that companies aiming to grow have historically set aside to invest in marketing efforts. To keep it simple, we have distinguished between the small and medium-sized businesses, and bigger, more established companies that may have overcome their competitors or already have a brand that their target markets (and maybe even the general public) would recognize.
Small and Medium-Sized Enterprises (SMEs)
SMEs, with tighter resources, allocate about 7-12% of gross revenue to marketing. We advise companies at this scale to focus on the sweet spot of marketing tactics that are the most cost-effective and will raise a positive response from their target audience. While brand awareness campaigns require longer timelines before real results are felt, making measured investments in this "long game" turn small companies into large ones, and also insulate a business from seasonal and economic fluctuations.
Large Corporations and Established Brands
With more resources, a longer brand history to stand on, and naturally some years of experience understanding their market, larger entities spend between 10-15% of their revenue on comprehensive marketing strategies, employing a balanced mix of traditional and digital methods. Traditional tactics such as print and out-of-home can make lasting impacts because they occupy physical space, so their "half-life" for memory creation can stretch longer than a digital ad that is viewed for just an instant. Large companies often capitalize on campaigns that employ several tactics– digital and traditional– all working together to really lock in the message they want to send, but it's a solid strategy for a business of any size, if they have the means and coordination.
Industry-Specific Marketing Budget Considerations
True, what makes sense for a marketing budget in one industry doesn't always translate to another. But the main influences to watch for are the competitive dynamics in your industry, and the volume of consumer engagement that your target audience historically exhibits. If you're the biggest fish– and one of a few– in a small pond, then you may get away with spending less than the average player in your vertical. Few companies have that luxury, however, and being vigilant (or at least cognizant) of how your competitors have positioned themselves can signal to you the gaps in the market your business can fill, sometimes without driving up marketing costs.
By consumer engagement we're raising the question: How much time and attention (impressions) do the members of your target audience need before you've convinced them to buy? Historically larger and more durable purchases require more frequent impressions– think of buying a house or a car. But even small purchases rely on smart marketing spending, whether it be the eye-catching display for the candy at the grocery store to the years-and-years-worth of brand building ads that the soft drink company has run.
Retail and Consumer Goods
This sector often dedicates about 15-20% of revenue to marketing, driven by the need for constant consumer engagement and competitive differentiation. Online retail has made the entire world an open marketplace for anyone scrolling on their phone, so players in these industries cannot afford to assume they will be chosen without an effort at distinguishing their offering through marketing– they are competing with every other product like theirs in the world.
Technology and Software
Tech companies, especially SaaS, may spend 20-30% of revenue on marketing during growth phases to build brand recognition and keep pace with industry advancements. Keep in mind that their business model often makes room for marketing since other expenses are reduced: for example, "inventory" could be as straightforward as server space, and shipping amounts to downloads. This advantage can mean a lower cost to entry– which means there can be a host of competitors that are offering similar services, so the marketing is a must for brand differentiation.
Service-Oriented Businesses
Service companies allocate around 10-15% of revenue to marketing, focusing on client relationship building and reputation for expertise. A solid reputation management strategy adds momentum to all the other marketing tactics, since we rely on our friends, neighbors, acquaintances, and online reviews to tell us who does good work. And although repeat business from existing customers costs nothing in terms of customer acquisition, incentivizing those customers to refer that service is worth some strategic thought and even some valuable incentives.
The Role of Digital Marketing in Budget Allocation
Digital advertising platforms, in general, offer layers of customization that include setting and tracking your budget. You may set a maximum budget for your ad campaign so that your spend doesn't get out of hand. Some digital tactics have a minimum threshold for entry, but after that you can expect more or faster results the more you spend– up to the point where your dollars have bought all the available impressions, or you've reached your target metrics. Digital ad spaces– Google, Facebook, etc.– do employ bid-based pricing and that cost cannot be directly controlled, but services such as SEO and content marketing are priced like any other service: quality work is worth more money, and most of the time you get what you pay for. The good news is that the results from these services can be tracked, and you should expect to see reporting on results.
Measuring ROI: Ensuring Effective Marketing Expenditure
Whenever possible, expect measurable results from your marketing. Digital advertising tactics have an advantage here, where impressions are recorded in real time and powerful software can aggregate, analyze and report more metrics than most people care to read. Many of these metrics are properly thought of as performance indicators, such as the number of new leads, click-through rates, keyword rankings, and a host of engagement statistics. They can point to a likelihood of success, however you won't know if your marketing is making you money until you calculate the cost of acquiring a new customer– the money spent from lead generation to conversion– and subtract that from the lifetime value of that customer (how much money they spend with you over their entire time as your customer). And if you find that your marketing strategy is bleeding money by gathering leads that don't convert, your strategy needs to change.
Future Trends in Marketing: Staying Ahead of the Curve
Marketing fundamentals can remain stable, but the methods and means by which these fundamentals are deployed are changing at an increasingly rapid rate. Recently marketing has become more personalized– new technologies have given us the ability to tailor messages and experiences right down to individual tastes, moods, and habits. AI is making many time-consuming processes more streamlined, but the output is only as good as the prompt– and the prompter! Video is currently king, and social responsibility is a factor in buying decisions. And two to five years from now, other factors could supersede it.
The smartest way to deal with future trends in marketing is to hire professional advertisers who study the landscape, take the time to understand the technology, and are actively preparing for the future. Even large companies with in-house marketing teams can benefit from partnerships with advertising agencies: the in-house team is the company's set of brand experts, and they also know their industry and markets, while the ad agency can bring cutting-edge knowledge and efficiencies in technologies and marketing processes. For small to medium companies, trying to understand the latest marketing trends– and choosing which ones "have legs" (will benefit them)– while also running a business is ambitious, at best. Leave it to the experts.
Conclusion: Quality Data Means Real Expectations
You would not "fly blind" when managing your supply chain or your production operations, and successful marketing is no different. Understand the thresholds and ranges of marketing spending in your industry, in your part of the world, and among your competitors– even an educated guess will equip you better than just hoping to get away with spending what you're comfortable with. While a "maintenance" strategy may require occasional budgetary tweaks and monitoring, it is reasonable to expect a marketing strategy aimed at growth to need more money behind it, even if it is crafted intelligently and maximizing its efficiency.
We start our clients with the smartest, most cost-efficient plan that responds to the specific factors of their industry and goals. We are advocates for our clients, not a particular product or platform. And if your marketing is not making you money, we are the first ones to suggest that you should stop, or change your approach. Because a company shouldn't spend money on marketing: that money should be an investment that more than pays for itself.
