Determining the proper marketing budget is a tough decision for any small business to make. These companies need that balance between revenue and costs while still investing in marketability growth, which makes this big question complicated to answer: how much should a business spend on marketing?
The U.S Small Business Administration recommends, "A general rule for small businesses with revenues less than $5 million is to allocate 7-8 percent of their revenue on marketing which will be based on the company's margin after expenses in a 10-12% range (also known as EBITDA).
For many businesses, especially those just starting and focused on building a brand name for themselves, it can make sense to spend up to 20% sales on marketing. The type of industry in which the business operates will determine how much it should budget each year for advertising and promotion purposes.
Regardless of the budget, all businesses can benefit from a system that keeps tabs on marketing spend. Here are some ways to make sure you're spending wisely:
The U.S. Small Business Administration recommends spending seven to eight percent of your gross revenue for marketing and advertising if you're doing less than $5 million a year in sales or have a net profit margin between 10% - 12%.
Total marketing budgets are btw 5 to 12% of total revenue. B2Cs generally spend more on marketing than B2Bs, and smaller companies tend to have higher percentages.
Payroll costs are often the most significant expenses for an organization. People can easily account for 70% of your company's spending, making it a significant factor when operating in any business environment.
"You may be asking yourself, 'what is a good profit margin?' A 10% net profit margin is usually considered average and the 25% mark of high (or "good"). However, in some industries margins are more variable."