How Much Should My Business Be Spending on Marketing and Advertising?
Chris Mulvaney is the CEO of CMDS. I make things... I’m the creative entrepreneur with passion for (re)making brands and inventing solutions to problems no one knows exist.
Choosing what you should invest annually on marketing and advertising
There are some fairly simple ways to decide what you should spend on marketing. Something as important as this should not be chosen arbitrarily. Instead, your company should decide on a percentage of its projected gross income to allocate for marketing and advertising. This percentage can range anywhere from about 2.5 percent to 10 percent for most companies. But the answer will, of course, vary depending on a few things like size of your company, age of your company and industry.
Percentage of Gross Revenue Per Company Size
2.5%
10.5%
20%
If you’re still asking yourself “how much should my business be spending on marketing and advertising?” then ask yourself three important questions:
1. How Big Is Your Company?
Large
Generally speaking, the larger the company is, the less it will need to spend on marketing because of its already wide customer base and brand recognition. We’re talking about Fortune 500 companies here. These companies will fall on the low end of the spectrum, spending around 2.5 percent of their gross income on marketing and advertising.
Small
According to the U.S. Small Business Administration, companies projected to gross less than $5 million dollars in revenues should have a marketing-to-sales ratio of 7 to 8 percent. According to HypergridBusiness.com (http://www.hypergridbusiness.com/2014/06/two-ways-to-decide-how-much-you-should-spend-on-marketing/), the average amount companies in general spend on marketing is between 9 and 12 percent of sales revenue. But depending on some of the other factors we’ll discuss, this could fluctuate higher or lower.
2. How New Is Your Company?
We’re Brand New
You might be wondering “how much should my business be spending on marketing and advertising when we’re brand new?” If you’re new to your industry, you’ll probably have to make a big marketing push to get your message out there. If you are a very small company launching a new product or service, you could end up spending as much as 20 to 50 percent of your projected sales revenue on advertising and marketing needs. The idea is that once you’ve made your marketing push and your brand becomes more recognizable, the percentage you spend on marketing will shrink as your business grows.
We’ve Been Around A While
People know who you are and recognize your brand. That’s great, and you won’t need to spend as large a portion of your gross income on marketing as a newer company. But you should still be focused on growing your business through advertising and marketing professionals. You won’t need to allocate too much of your gross towards marketing, but be ready to fall somewhere in that 9 to 12 percent average.
We’ve Been Here Since The Beginning
Your company has existed as long as the industry itself and your brand is about recognizable as it gets. These companies will tend to spend a significantly smaller percentage of their gross incomes. Think Wal-Mart, which spends less than a half a percent of its gross sales on advertising. But that number, even though it seems small, goes a long way in maintaining and growing its global brand.
3. What Industry Is Your Company In?
One of the most important factors when it comes to picking a marketing goal is what industry you do business in. For the full 2013 advertising-to-sales ratios by industry click here: http://www.rab.com/secure/AdtoSales/2013AdtoSalesRatios.pdf. While beverage companies spent 8 percent of their sales revenue on advertising, the hotels industry spent just 1 percent. It’s important to note that these numbers only reflect advertising and not all marketing expenses.
Once you have a better idea as to how much money you want to spend on marketing and advertising, you’ll need to decide where it’s all going. Online marketing can be ineffective if you aren’t able to gather enough attention. According to a 2013 Nielsen report, while television still holds the majority of the share for advertising, it only grew 2.3 percent from the previous year. However, internet advertising grew 32.4 percent while advertising in newspapers and magazines dropped 2.2 percent and 1.1 percent respectively.
But you might be wondering “how much should my business be spending on marketing and advertising” when I don’t even know where to spend it? To better understand where and how we think you should focus your marketing dollars, please see below:
B to B Recommended Marketing Spend
B to C Recommended Marketing Spend
To learn more about how CMDS can help grow your business through a personalized marketing strategy, call us today at 732-706-5555.
