In today's business landscape, where businesses face challenges from small local competitors and larger multinationals, establishing a suitable marketing budget is crucial for all businesses, including local family-owned ones. Investing the right amount in marketing can be the key to standing out in your community and ensuring a steady flow of customers. The pressing question for many local business owners is: how much should we set aside for marketing?
Percentage of Revenue - The Traditional Model
Traditionally, businesses have been advised to allocate between 5% to 10% of their gross revenue to marketing. However, the specific percentage varies based on several factors:
Industry
B2C companies, especially in sectors like retail, often allocate a larger portion compared to B2B companies.
According to a 2022 Deloitte Report, these were the marketing budgets as reported by CMOs by sector. In the services sectors, sales teams have separate budgets on top of the below.
| Sector |
% of total budget |
% of revenue |
| B2B Product |
12.5% |
7.8% |
| B2B Services |
9.2% |
5.9% |
| B2C Product |
22.7% |
15.1% |
| B2C Services |
12.3% |
6.5% |
Business Age
New businesses looking to establish their market position or launch a new product might spend a higher percentage to make a larger impact in the market and increase brand awareness.
Business Size
Larger corporations with established brands might spend less than small and medium enterprises.
The Digital Shift - Changing Dynamics
With the rise of digital marketing and e-commerce, businesses have seen a shift in where they allocate their marketing dollars. Digital marketing can be both cost-effective and highly measurable, leading to:
Higher Digital Allocation
Recent research from Gartner suggests businesses are reprioritising investment into digital channels.
Focus on Content
Content marketing, especially, is seeing increased budget allocations given its importance in SEO, social media, branding, and lead generation.
Objectives and Goals - The Defining Factor
Your marketing budget should align with your business objectives. Are you looking for brand awareness, customer retention, or lead generation? Not only does your marketing budget need to be balanced across the customer journey, it needs to be tweaked depending on what you are trying to achieve.
Brand Awareness and Consideration
If you're introducing a new product or entering a new market, you might need to allocate more towards campaigns that boost visibility. If you are entering a competitive market, you may need to spend more to cut through the competition.
Customer Retention
Businesses focusing on customer loyalty might invest more in email marketing, loyalty programs, and customer feedback tools.
Lead Generation and Conversion
Pay-per-click advertising and inbound marketing can be effective, but they also require a significant media budget as well as the resources to manage the execution.
Consider the External Factors
The COVID-19 pandemic has taught businesses the importance of adaptability. Economic downturns, global crises, or industry-specific disruptions can affect consumer behaviour.
Set Aside Contingencies
Keep a portion of your marketing budget for unforeseen opportunities or challenges throughout the year. Although it is important to have a strategy and set plan, having some budget set aside can be beneficial to leveraging new opportunities or hurdles.
Re-evaluate Periodically
The marketing landscape evolves rapidly. Stay updated with current trends, our competitors and the external environment and adjust your budget accordingly.
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There's no one-size-fits-all answer to the question of marketing budget allocation. Current research points to a dynamic approach, adjusting for industry standards, business goals, and external factors. Ultimately, continuous evaluation and adaptability will ensure that your marketing spend aligns with your business objectives and delivers optimal ROI.
