A frequent question we field from small and medium-size businesses is how much they should spend on marketing. This can be a tough question for seasoned businesses, and even tougher for startups.
While there’s no one-size-fits-all formula for calculating how much you should spend, we can offer some guidelines. The Service Corps of Retired Executives (SCORE) and the U.S. Small Business Administration (SBA) define the variable for a proper marketing budget to be between 2% and 10% of sales, noting that the total for business-to-consumer (B2C), retail and pharmaceuticals can exceed 20% during peak brand-building years. As an example, at 5% of gross, a company with $3 million in revenues would consider allocating $150,000 a year for marketing.
B2C budgets are generally higher than business-to-business (B2B) because the cost of reaching a large population through broadcast media can be quite expensive. B2B budgets are typically lower due to smaller target audiences and sleeker, niche marketing solutions.
Nailing down a number
Although many companies determine their marketing budgets as a percent of gross revenue, that doesn’t mean they pick an arbitrary number within the recommended range. So how do you arrive at a percentage that’s right for you?
Often, the percentage is determined by industry and size, so it’s smart to reach out to industry associations you belong to for benchmarking information. Additionally, many CPAs subscribe to research software and may be able to help you with your industry information.
What items belong in the marketing budget?
The fictional $150,000 budget set for a company with $3 million in revenues might sound like a lot at first, but not when you consider all that goes into it. The budget will support in-house marketing salaries, agency and public relations fees, media buys, printing, mailing, postage, trade shows, memberships, website, etc. So you can see how quickly the numbers add up. SCORE provides a handy worksheet to help you along on its website.
Regardless of how you arrive at the final figure for your marketing budget, it must be one that realistically supports your sales plan and returns an appropriate ROI. Depending on corporate goals, your budget may be 4% this year and 8% next year. And if you are new to the marketplace, you have to spend more aggressively to establish your business objectives.