3 Keys to Understanding Marketing Budgets

Black calculator on top of marketing budget numbers printed on white paper.

Why do you need a marketing budget for your business? How do you determine what it should be? We hear this a lot from companies of all industries and sizes, ages and market share. Figuring out the sweet spot can be challenging, but we can help. Take a look at these three keys to understanding marketing budgets to get you started in the right direction.

Calculate what you currently spend on marketing now.

Many companies have a fixed percentage of revenue devoted to marketing, while others have no clue what they currently spend on marketing in a given year. Whether or not you realize how much, your business is in some way, shape, or form is currently putting dollars toward customer acquisition.

Do you have employees? How about an office building? Company cars? Uniforms? All of these are what we refer to as ‘touch points.’ They are all the moving pieces of your brand that make up your marketing efforts and therefore your business’s marketing budget. Touch points are essentially any encounter a customer or potential customer has with your company or brand.

example of positive touchpoints

All of these pieces work together to market your brand just as much as a television commercial, website, print ad, or any other marketing medium. Every company should have a marketing line on its profit and loss statement (P & L) that calculates each touch point for your company. Factoring those in when analyzing your budget will help you understand more clearly what you are actually spending each year on marketing.

What the industry says across the board about setting your marketing budget.

From business type and revenue to overall growth goals, every company is unique and the process for developing a marketing budget is no different. While there is no one-size-fits-all when it comes to setting a marketing budget, there are industry guidelines and suggestions that should be targeted.

The general rule of thumb is that 10-12% of your annual revenue should be put toward marketing. The Small Business Administration advises allocating 7-8% of revenues for companies less than $5 million. Will this be effective – or even possible – for every business? The answer is no.

“Around 10% is the industry standard, but we usually tell people anywhere from 2-15% depending on what their marketing goals are and what type of business it is,” says Dave Gilbert, President of Stray Media Group. “Typically in the immediate area we serve – the upper Red River Valley – we see companies that are too conservative with their marketing budgets at a range between 1-5%, which tells us they’re missing opportunities for customer acquisition and overall growth.”

Business people at white board.

If you have a smaller company, especially one that’s still heavily in the growth phase, your magic number will need to (greatly) increase in order to create the customer following your business needs to grow in the right direction.

When would it be appropriate to decrease the percentage? If your company is a strongly differentiated, well-established leader this number may decrease because you already have a solid, loyal customer base. Even in these cases, a non-existent marketing budget or one under 1% won’t work hard enough for your business’s continued growth, so it’s important to formulate the best plan for achieving your goals long-term.

How to find your magic number when it comes to setting your company’s marketing budget.

Setting up your company’s marketing budget is going to first take some analysis of your current efforts to calculate what percent of your annual revenue you are already spending. Then you need to do some serious thinking about what your business’s goals are for growth and what you want to get out of your marketing. This will help give perspective on where your budget should be.

When working to find that magic number for your company, realize going into it that marketing is an essential part of gaining new customers and should be a line item on your P & L (if it isn’t already). A <1% marketing budget won’t get you much, and goals like new customers, growth or expansion, and being top of mind in today’s competitive marketplace should be worth a lot more to any business.

“If you fail to plan, you are planning to fail.” – Ben Franklin

Are you a progressive company with a strong focus on growth? Hoping to increase customer engagement? Maybe you’re looking to stay top of mind with your existing audience? Regardless of your current company status, start by evaluating your overall business goals and plan your budget to match.

At Stray Media Group, we recognize that every company is unique and are here to help find your magic number. Our team works with you to look at your goals and work with you to create a  customized marketing plan that grows your business and increases revenue in prioritized phases to spread your budget as far as possible. Contact us to help you start growing in the right direction today.

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