You want a specific number for your marketing budget, but everyone says “it depends”. Which is frustrating.
At numero® we know that a budget isn’t a cost; it’s the fuel for your business marketing engine.
Read on – by the end of this article, you will have a formula, not just a guess.
Top line guesstimates
The quick answer to how much to spend on marketing is a range of between 5 – 15% of your gross revenues for an owner-managed business. For an enterprise (large) business it may be between 5 – 11% of gross revenues – but the $ amounts are much higher than for a medium sized business. The type of business you are working in will give you some frameworks which can help you to work out the answer. There are nuances which may affect your business differently.
Summary of five marketing budget use cases
- Business to consumer B2C – if you sell direct to the public – 10 – 15% of gross revenue
- Business to business B2B – if you sell to other businesses – 5 – 10% of gross revenue
- Startup new business – early stage businesses – 12 – >20% of gross revenue over the first one to two years trading as you build revenues. This is sometimes laughingly called the ‘new business tax’ because they buy market share whereas established firms pay less to maintain market share
- Long-established businesses – with repeat customers – 5-10% of gross revenue
- Growth businesses – if you want growth – 10 – >20% of gross revenue
How to calculate your marketing budget
Getting a rough idea of your marketing budget can be done quickly. But a more robust (and defensible) strategy is to use the ‘objective and task’ method. This sets out strategic goals for a 3 year plan and then identifies the tasks which must be achieved in order to achieve the goal. The costs of each task are asessed and added up to create a budget – this can be represented as a percentage of forward revenue.
A simpler broad framework which you can use instead of picking a percentage is to have a data-driven marketing budget.
- Define your business goals – growth targets in revenue, new product launches, recurring revenues
- Know your key metrics – Customer Lifetime Value (CLV), Cost of Customer Acquisition (CAC), Lead conversion rate
The Formula: (Target New Customers) x (CAC) = Required Budget.
As a rule, your customer CLV should be at least three times 3x your CAC. You need to know that your customers will stick around long enough for you to recoup the acquisition costs and make a profit.
The simplest calculation is for B2C. You know how much each product costs you to make, buy or service. You also know your monthly fixed overheads and the average monthly revenue. Deduct the price the customer pays from the cost of the product and a portion of your monthly overheads. Remember to include all your marketing spend – not just advertising.
What you’ve probably overlooked
Marketing as a business discipline includes a lot of different cost items – it’s not just how much you spend on Google Advertising. Here’s our checklist of costs which should be included in your marketing budget
- Marketing software and tools – Website software (Shopify, WordPress theme), email marketing (Mailchimp, Salesforce, Marketo, Active Campaign), design software (Canva, Adobe Illustrator), affiliate services like social media (Hootsuite, Buffer, Sprout Social).
- Website costs – domain, hosting, IT support, maintenance, plugins, web developer/designer
- Content creation – copywriter, video, social media, photography
- Personnel – all the people and marketing agencies who do the work on your business marketing
- Paid media – from Google and Meta to LinkedIn and Out of Home advertising sites
- Your time – this may not cost $ directly but there is an opportunity cost of what you could have done with the time if you weren’t working on marketing
Testing & Scaling
Until you actually know real results from marketing, you need to start with a simple framework of budget distribution. Later, when you have results to compare, you can adjust these percentages.
The “70/20/10” Rule
- 70% on what you know works
- 20% on optimising new channels
- 10% on wild experiments
Our general advice is start small to determine the CAC for your business before scaling. Keep early risks low and spend tightly controlled.
Tips from numero® account managers
Our Account Managers work with a diverse range of clients and they have great insight into the range of different priorities set by business owners on their marketing budgets.
- Start small and test
- Focus on return on investment (ROI) not just cost
- Use low cost strategies first – Google Business Profile, Email marketing, Content marketing, SEO, Organic Social Media, product advertising, search advertising
Remember, your marketing budget is a living document, not a stone tablet. The market can change (AI is novel and has changed SEO into GEO) and your competitors marketing activities also affect your results.
What next?
If you are still not sure that your maths is right book a strategy call and we’ll sanity-check your workings.
