How Much Should Your Small Business Really Budget For Marketing?

Marketing strategy documents

Back when Apple was the new kid on the block, Steve Jobs struggled to keep his business alive. Fast-forward to a decade later. He turned a near-extinct company around to build an iconic brand that millions of people have pledged loyalty to. How did he do it? A lot of his success started with a sharp marketing strategy. Steve Jobs understood the huge role marketing plays in a company’s long-term success—and he planned his budget accordingly.

But Steve Jobs’ story might be a bit of an anomaly for a lot of small businesses. Why? Because at first, many young companies scrutinize over how much to allocate to marketing—or if it’s even worth it at all. Is their budget on par with competitors? Are they spending too much or too little? Are they spending that budget on the right things?

Here’s the thing: No one intuitively knows how much to spend on marketing their business (except maybe Steve Jobs). But the truth is that for every business, big or small, marketing is vital to profitability and growth. Yet, according to the U.S. Small Business Administration, small businesses especially don’t budget enough for a strong marketing strategy.

Long story short, marketing matters. But a lot of young companies don’t know where to start. Ready to build a marketing plan that’s fit for your business? Here’s a look at how top industries allocate their marketing budgets—and what you can learn from them.  

Here’s What Top Industries Spend On Marketing Budgets

Before you dive into the nitty-gritty of what your marketing strategy looks like, you have to know how much you can afford to spend. Fortunately, thousands of businesses across hundreds of industries have been in your shoes. Take a lesson from them and use their benchmarks as a jumping off point. According to a study that surveyed more than 300 Chief Marketing Officers, here’s how some of the top industries allocate their marketing budgets:

Average percentage of revenue spent on marketing by industry

Here Are A Few Things To Consider When Building Your Marketing Budget

While the percentages above serve as benchmarks, building your own budget starts with taking a hard look at your own business goals and finances. There’s truly no one-size-fits-all rule on how much money a business should budget for marketing. That’s why, in the end, it really depends on your industry, stage in business, and profit margins.

Here are a few rules to consider as you start crunching some numbers:

A new business’ marketing budget is often disproportionate to revenue

No matter what stage your business is in, marketing budgets are often based on a percentage of your gross revenues. But here’s the greatest Catch-22 many young companies face in marketing their businesses: You need to market your brand to make money but, well, you don’t have money—yet. That means a startup business may need to budget a disproportionate percentage for marketing compared to its sales when first getting off the ground. 

In the early stages of a new business, calculate a budget based on sales projections

To calculate your marketing budget, look at your sales projections for your first year in business. This includes everything from predicting your annual revenue, a breakdown of revenue streams, and calculating the overhead it takes to produce what you’re selling. A reliable and in-depth accounting system can help tell you everything you need to know.

When in doubt, follow SBA guidelines

Once you understand where you want to go and what you have to work with, consider some of the averages for younger businesses. The Small Business Administration recommends spending 7% to 8% of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales. 

Are You Ready to Set Your Marketing Budget?

While there are a lot of variables that go into building your business, a smart marketing budget is something your company can’t live without. So what’s next? Make sure you have the right tools in place to accurately understand where your business is and where it’s going.

Consulting accountant experts is a good place to start when looking to gather the right insights. Request a demo with ScaleFactor today to learn just how financial and accounting software can help you build smart budgets and forecasts.

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