How Much Should a Business Spend On Marketing

UPDATED: 
July 21, 2021
How Much Should a Business Spend On Marketing

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:

  • Have a qualified marketing plan. Outline the costs and plan on how you will achieve your goals within a reasonable time frame. For help in creating this, visit Does Your Business Have a Marketing Plan or How to Set Up A Marketing Budget that Fits your Goals And Provides High ROI?.
  • Track return on investment (ROI). Measure the effectiveness of your activities and spending. If you find one quarter more profitable than another, investigate why by reviewing what tools such as Google Analytics and call tracking can do for you or even just pen & paper. Tracking will empower us to spend less time on things not working while doing more work with proven results!
  • Revisit your plans. A good marketing plan is dynamic. It's a living document which can change and evolve as new information comes to light or your objectives shift slightly over time. At the end of every year, it helps to take stock - literally! Remembering where you came from will help keep you on track for those goals in 2019-2020 too. To make the suitable changes, you are on the right track.

FAQ's

How much should I spend on marketing a small business?

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%.

How much do companies spend on marketing?

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.

What do small businesses spend the most money on?

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.

How much profit should a small business make?

"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."

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