Each year, companies would take time to plan out their marketing budget. Asking about it can be easy, but coming up with the answer is not. Budgeting in itself is already tricky—what more if it’s a budget for your company’s marketing needs?
To make any marketing effort successful, a company should be willing to spend money in order to make money. Sounds easy, right? Well, it’s actually not. Funding and budgeting is a crucial element for business, and spending it carelessly on any marketing strategy is a surefire way to end your “business empire” dreams.
While there may be general rules, there are still many factors that must be considered when coming up with a final and fixed marketing budget. For one, your marketing funds may be based on how long the business has been existing in the market. The type of industry is also another factor to consider when brainstorming your business spending.
Lastly, business owners must acknowledge their desire and willingness to invest and risk and how fast they want their business to grow. The higher your desire, the higher your marketing budget percentage gets.
General Marketing Budget Rules to Consider
Ideally, companies are encouraged to allot no more or less than five percent of its total revenue in marketing. Doing so can help any establishment in keeping its current position in the market.
If you think five percent is too small for your ambitious business mindset, worry not because you can always increase that percentage. In fact, some businesses would have a marketing budget of at least ten percent of their overall revenue to grow faster or acquire high market shares.
However, keep in mind that this budget percentage can vary depending on the business type that you run and the market and industry it belongs to. Companies that belong in highly competitive markets would often allocate twenty to fifty percent of their net income for their marketing strategies alone. Such companies usually belong in retail, consumer product production, and the pharmaceutical industry.
The general rule of thumb, which is to allocate at least five percent of your overall revenue, simply serves as a guide for your company’s suitable marketing budget. Five percent is better than no marketing budget at all. In addition to that, such a rule is based on companies that are already earning six-figure revenues.
To conveniently determine the best marketing budget percentage for your business needs, consider following these formulas:
- Total Revenue x 5% existing awareness and visibility maintenance; or
- Total Revenue x 10% market share growth and gain
If the results seem risky or far fetched for your liking, simply keep in mind that the total budget calculated using the said formulas already covers your entire marketing expenses, no more and no less. Such expenditures may already include your marketing personnel, along with printing, advertising, and outsourcing needs.
Do not take marketing for granted as this could help you spread the word faster to your target clients or consumers in the best and memorable way possible. Don’t be like those organizations that are settling in their comfort marketing budget zone. It could make your business stagnant and out of the trend. Just keep in mind that the bigger the risks, the better the reward would be.
More Factors to Consider
Another factor to consider upon coming up with your business’ marketing budget is the percent-of-revenue estimation. This factor should be examined upon your business’ launching of new products and services or new market entries, mergers, and acquisitions. With this estimation in mind, you now have a starting point about how you can get your ideal marketing budget.
For instance, business organizations are encouraged to spend at least ten percent of the year’s gross sales on marketing for every new product or service launching. Companies that serve customers with their products and services often have a greater marketing budget percentage than Business-to-Business or B2B companies.
Expected Returns: What to Expect?
Say you have already taken a quite hefty risk—now what? Should you expect returns in greater amounts or not? How much can you get in return for your marketing investment? How will these marketing investments impact your business in terms of profits and gains in the long run?
While these are fair concerns, unfortunately, there is no simple and direct answer. Some marketing strategies or methods require a much longer timeframe for you to see a noticeable and impactful outcome. For instance, the results of your marketing budget spent on your brand’s growth would naturally take a long time compared to lead-generation strategies.
But do keep in mind that marketing endeavors would snowball gradually. Never fret; as long as you are doing it right and are giving all the right messages to the right audience, rest assured that you will have more than satisfactory returns.
While there are general rules cited, always keep in mind that every business is different. The marketing budgeting strategies of a successful company might bring failure to you and vice versa. Marketing will ultimately depend on how much you are willing to invest, take a risk, and how fast you want your business to grow. The size of your business does not even matter when it comes to planning your marketing budget! So, plan now, use the formulas, consider following the general rules, and trust your instincts upon determining the best budget percentage you need to achieve marketing effectiveness.