How can I build a better marketing budget? How much should I spend on my marketing?
These are common questions that I hear in marketing planning conversations.
There’s not an easy answer to this question. I often say, “Well, it depends.”
Let me explain – in general, there are three common ways to approach marketing budgeting.
Three Marketing Budget Methods
- Percent of Top Line Sales
- Based on Market Share
- Based on Objectives
The percent of sales method is difficult for start-ups to use because as sales increase, so does your marketing budget. When you have low awareness and low sales, you may need to spend more money on your marketing.
When you calculate your marketing budget based on market share, you’re probably a larger, established company that has market research that guides your planning. Even a smaller company can benefit from quantifying the overall market size, identifying key competitors, and estimating internal market share. Industry groups and trade organizations may also be able to provide insights on average marketing or advertising spend.
Finally, objective-based marketing budgeting is the most time-consuming method; however, it is the most effective. I briefly discuss the laddering of corporate goals into marketing and advertising goals in Your 2021 Marketing Roadmap blog post. By aligning internal strengths with external opportunities, you should budget marketing dollars to promote key objectives in the coming years.
Common Marketing Budget Benchmarks
Let’s explore some other sources for more information.
According to the latest Deloitte CMO Survey:
“marketing budgets have risen to the highest percentage of organization budgets and revenues in the Survey’s history (12.6 percent and 11.4 percent, respectively).”
Marketing spending is expected to decline in the next twelve months, as companies continue to weather and adjust to COVID-19.
Pre-COVID, the CMO Survey in 2017 describes differences in industry spending with consumer packaged goods companies spending 24% and manufacturing companies spending 8% of their overall budgets on marketing.
For smaller organizations, these numbers can seem less applicable, so I suggest referring to the SBA’s marketing budget guidelines of 2 – 8 percent. This can vary based on your industry, company size, and level of awareness.
Do the Math
Any budget requires careful calculations and coordination with accounting and finance. I recommend working on a specific formula: a break-even point to provide some additional guidance.
Break-Even point formula = Fixed costs / contribution margin
The contribution margin = (price – variable costs)
Here’s a Break-Even Point resource.
You may have to make some assumptions to calculate a break-even point, but it’s important to assess profitability and have healthy margins for your products or services for long term operations.
As the SBA article states, many budget percent recommendations assume that you have margins of 10 – 12 percent, after covering expenses that include marketing.
Plan, Track, and Tweak
As with any sound marketing plan, be sure to track expenditures and performance to assess what’s working. Based on results, tweak your marketing mix and keep on tracking. Marketing is not an exact science, so anticipate learning as you make your marketing better, year after year.
Reach out with questions on navigating your marketing for 2021. I provide marketing coaching, “done with you” marketing, and “done for you” marketing support.