How to Determine the Right Marketing Budget for Your Business

In this month’s POB, I share my thoughts with you, along with some input from a marketing expert. My friend Stacey Danheiser shared her thoughts with me on what she wishes finance understood about marketing. I took that article and compiled an answer on what to consider when you’re spending marketing dollars in your biz.

I hope it can help you work smarter and plug any leaky buckets in your business.

Q: How much should I spend on marketing for my business?

A: The dreaded answer is...it depends. I’ve outlined what I consider when working with clients to optimize their marketing spend.

1) Marketing is an investment, not a cost center.

Marketing drives growth, so we need to focus on setting targets and tracking outcomes of our marketing spend to ensure marketing dollars are working towards growth targets. As a CFO, I'm less concerned about how much of the budget was spent on marketing, and more interested in tracking the return on the spend and the company’s overall profitability.

2) Before you think of investing any money into marketing, set sales targets.

Your sales target is your north star for your marketing spend. To set targets, I recommend beginning with a top-down approach - i.e. what is my total annual sales target for next year? If you don't know how to set this, a good place to start would be looking at the last 12 months of sales -  and adjusting that figure based on what is going to happen in the business over the next 12 months.

Once you have a target - get more granular. Breakout that total sales figure by product or service. What volumes will you have to sell of each product or service?  How is that going to be different from the last 12 months? You will then get clarity on what marketing investments will be required to achieve those targets.

3) What type of business are you?

Your marketing strategies depend on your end customer. Stacey provided some benchmarks to assess if you are investing too much, or too little on marketing. There is no one-size-fits-all number. While these parameters are great as a rule of thumb, your spend will also depend on the ROI you are generating and the capital you have available to invest in marketing investments.

B2B companies

A common rule of thumb is to spend 2–5% of revenue on marketing. However, companies that are growing rapidly may spend 12–15%.

B2C companies

A common rule of thumb is to spend 5–10% of revenue on marketing. B2C product companies may spend as much as 17% of their budget on marketing.

Overall

In 2023, the average marketing budget was 9% of a company's total revenue

The answers will be in the data you track on how much you spend and how this generates revenue growth over time. You won’t know until you try different strategies. The key is timeliness. Scrap what isn’t working quickly. Double down on what is working and you can beat the competition and gain more market share.

If you’re beginning to think about your budget for next year, and you need more clarity on a financial plan and operating budget, I would love to help you.