How much of your revenue should you spend on marketing?

As a small business owner, you have a lot of decisions to make.  One such decision that can really impact your business is figuring out how much money to spend on marketing and advertising. 

Today, we’re walking through how much money you should actually be putting toward marketing for your small business. Spoiler alert: It’s probably more than you think. Spending money on digital advertising may feel like an unnecessary expenditure, especially if you’re not seeing a high rate of return right away or your business is new and your revenue is still low.  However, if you want your business to succeed, you’ll need to dedicate some serious budget to marketing.

What Businesses Are Spending in 2023 

Businesses small and large are spending money on marketing, and their marketing budgets are only continuing to increase in 2023. The US Small Business Association recommends 7-8% of revenue should be dedicated to marketing efforts. 

And according to the data, this isn’t just an aspirational number: Companies are meeting, or even exceeding, these recommended marketing budgets on a regular basis. As a whole, brands tend to spend anywhere from 5-25% of their total revenue on marketing.  Deloitte’s annual CMO survey found that companies are planning to spend an average of 13.6% of their total budget on marketing in 2023. This varies a bit across industries: B2B product industries, B2C service industries, and B2B service industries have similar marketing spends planned: 7.8%, 6.5%, and 5.9%, respectively.  But companies in B2C product industries plan to spend a whopping 15.1% of their revenue on marketing. 

Our recommendation is that no matter what industry you are in or how established your business is, you should spend an absolute bare minimum of 3% of your gross revenue on marketing.  If you can exceed this figure, that is great.  But at least a 3% commitment should give you (or the digital marketing agency you’re working with) the means to conduct serious and successful marketing campaigns. 

Sustaining vs. Growing: A Key Factor in Your Ad Spend Decisions 

Exactly how much your small business should spend on advertising depends on a number of factors: Your specific industry, what your competitors are spending, and more.  One of the most important things to consider when setting a marketing budget is what you are trying to achieve:  Do you want to just sustain your current business, or are you looking to grow and scale up?  

Not surprisingly, growth requires a larger investment in marketing.  If you are happy with the size of your business and are just looking to sustain your current momentum, spending just 5% of your revenue on marketing could be sufficient.  But if you are looking to grow your business, expand your reach, and increase your revenue, expect to spend more like 10-15% on the marketing campaigns to make this possible.

Exception to the Revenue Percentage Rule 

Admittedly, there is one major exception to the rule above, of using a percentage of your revenue as the way to determine your marketing budget. If you business is brand new or extremely small, you may not yet have enough revenue for 5-10% to sustain successful marketing efforts.  In these cases, committing a set dollar amount to marketing each month will make more sense than calculating a percentage of your revenue.  If this case applies to you, a marketing consultant or digital marketing agency can help you determine what specific budget is appropriate for your business.

So Why Should You Spend on Advertising? 

We’ve walked through how much other brands are spending on advertising and talked about some of the key factors that could impact your ad spend decision making.  But why should you even spend money on advertising?  Everyone is doing it, but why?  The short answer is that it works.  But let’s dig a little deeper. 

Digital ads increase brands’ exposure, help bring in new customers, and drive sales. Marketing campaigns can be used to both find new customers and re-engage past customers to purchase again.  

And the more you spend on advertising, the more effective your efforts will be.  You need to invest money in advertising to gather data and find out what works for your business.  If you don’t spend enough, you might not be able to reach a wide enough audience. Spend on advertising in a systematic and strategic way and you will be rewarded.

5% of your revenue could be a LOT of money, depending on your company’s size.  With such a major investment, you wouldn’t want it to go to waste.  That’s where a skilled and experienced marketing agency comes in to play.  If you’re not sure how to optimize your ad dollars, an agency can help.  Here at BYK Digital Marketing, we work with all kinds of small businesses to help them stretch their marketing budget as far as it can go.  Our website can help you learn more about our digital marketing services. Or reach out today for a free consultation!