What’s the Right Percentage of Gross Revenue to Invest in Marketing?

Seamless growth isn’t just about having an exceptional product or service; it’s also about smart, strategic investments in marketing that enable you to outshine your competition.

But exactly how much of your gross revenue should be allocated to marketing? What’s the optimal percentage for your company?

There is no one-size-fits-all percentage of gross revenue to spend on marketing. The amount a company should allocate depends on various factors such as industry, company size and status, location and state of the economy, customer volume, partnerships, and marketing activities.

In this article, I’m going to strive to unravel the mystery, dig into some industry statistics, and delve deep into optimal budget allocations geared toward propelling your brand to new heights.

Let’s break down the science behind perfecting this allocation for business survival and success.

What Are Companies Currently Spending on Marketing

According to Gartner’s Annual CMO spend survey for 2024, marketing budgets have dropped to 7.7% of overall company revenue in 2024. This represents a 15% decrease from 2023 when spending was, on average, 9.1% of total revenue.

Here are a few real-world examples as data points of the highs and the lows:

Angi Inc. (formerly Angie’s List)

Angi, a digital marketplace for home services, spent $445.8 million on marketing in 2022. This was about 29% of their total revenue of $1.54 billion, reflecting the digital nature of their business and the need for high customer acquisition.

ServiceMaster Global Holdings

In 2022, ServiceMaster, which owns brands like Terminix and Merry Maids, spent approximately $105 million on marketing. This represented about 3.4% of their total revenue of $3.1 billion.

Frontdoor Inc. (American Home Shield)

Frontdoor, which owns American Home Shield and other home warranty brands, spent $155 million on marketing and advertising in 2022. This was about 9.3% of their total revenue of $1.66 billion.

It’s essential to use any quoted percentages as guidelines rather than absolute goals and adjust based on your organization’s unique circumstances.

Naturally, budgets vary significantly by industry. For example, the 2023 Deloitte survey shows the top spenders on marketing were Communications and Media at 19.4%, while old-guard industries such as Mining and Construction hovered around 3.5%. 

In summary, a typical marketing budget today is around 7-11% of total company revenue, but this can fluctuate year-to-year and vary greatly by industry. Overall in 2023, the trend has been downward pressure on budgets as companies aim to control costs.

What Does That Mean In Dollars?

What do these percentages mean in real dollars? For the sake of simplicity, we’ll use a cross-industry low-end of 7% based on the surveys I’ve cited.

A company with $40 million in annual revenue would be averaging an allocation of approximately $2.8 million to marketing.

Given that most companies fall between 7-11% for marketing budget as a percentage of revenue, a reasonable range for a $40 million company would be $2.8-4.4 million.

For a local home services business with revenues of $1M annually, 7% is still $70K per year. Is your plumbing business spending $70K/year on marketing?

Obviously even on the low-end, these are serious numbers that should be taken into serious consideration.

Is your company on the high or low side of this equation?

A company that’s not growing as fast as you should may have allocated too little to its marketing budget.

What Goes Into a Marketing Budget?

Salaries of the personnel in a company’s marketing department are typically included in a marketing budget. These may be salaries for marketing managers, directors, coordinators, specialists, and any other employees who work on marketing campaigns and initiatives.

In addition to salaries, marketing budgets may also include other costs, such as:

• Paid advertising
• Marketing software and tools
• Event Sponsorship
• Public relations
• Content creation
• Market research
• Travel and expenses

The specific mix of costs included in a marketing budget will vary depending on the company’s industry, size, and marketing goals. However, salaries are typically one of the largest components of marketing budgets.

According to a survey by Gartner, marketing labor costs (including salaries, bonuses, and benefits) account for approximately 24.9% (a quarter of the budget) of the total marketing budget in 2024. This is likely due to the cost of talent and the growing importance of digital marketing, which requires specialized skills and expertise.

It is important to note that some companies may choose to exclude certain costs from their marketing budget, such as the salaries of sales representatives or customer service representatives. However, most companies will include all of the costs associated with their marketing department, including salaries.

Growing Pains, or “But That’s How We’ve Always Done It”.

Companies, even ones with large annual revenues, often rely on wonderfully inexpensive but difficult to scale marketing approaches like word-of-mouth in their early stages. The personalized endorsements of delighted customers helped get the business off the ground.

It’s certainly tempting to “stick with the horse that brung ya“, as the saying goes. The marketing tactics that worked to establish the brand seem reliable and safe. Change feels risky.

However, as revenues grow, companies often find themselves stuck.

Organic word-of-mouth has natural scaling limits. The founder can’t personally delight every new customer at 100 times the volume. And customers are less likely to enthusiastically advocate a brand as it loses its intimate feel.

Thus, companies reliant on word-of-mouth marketing usually hit an inflection point where revenues plateau. Breaking through requires embracing new marketing strategies.

Transitioning to scalable SEO services, paid social advertising or Google Ads services, leveraging influencers and implementing referral programs can be critical steps which require moving out of the comfort zone of familiar tactics. However, adapting the marketing mix is vital for ventures aiming to progress from startup to established brand.

Clinging to non-scalable approaches can choke growth potential.

Growing pains are surmountable with a willingness to evolve.

Understanding Revenue-based Marketing Budget

When it comes to determining the ideal allocation of marketing spend, adopting a revenue-based approach can provide valuable insights.

A revenue-based marketing budget is a strategic framework that allocates a certain percentage of gross revenue specifically for marketing activities. This method ensures that businesses allocate their marketing funds in proportion to their overall revenue, allowing for a more balanced and sustainable approach.

The concept behind a revenue-based marketing budget is simple: as your revenue grows, so does your marketing budget.

Businesses can make data-driven decisions and prioritize investments based on actual financial results by directly tying the marketing spend to revenue performance. This approach helps align marketing activities with business goals and demonstrates the value marketing brings in driving revenue growth.

Adopting a revenue-based marketing budget approach offers several benefits.

Firstly, it ensures that businesses maintain a healthy balance between investing in marketing and other essential areas of operations. It prevents overspending or underinvesting in marketing activities, ensuring that there are sufficient resources to support business growth.

For example, let’s say a business generates $1 million in annual revenue and the C-team decides to allocate 9% of their gross revenue towards marketing, which amounts to $90,000. As the company’s revenue increases to $2 million the following year, it would then allocate 9% of this new figure ($180,000) for its marketing budget.

Another advantage of a revenue-based approach is its flexibility. As business performance fluctuates throughout the year or during different seasons, organizations can adjust their marketing spend accordingly without compromising profitability. This adaptability allows businesses to stay agile and responsive to market dynamics and customer needs.

• According to Deloitte’s 2020 survey, businesses across varied industries should allocate different percentages of their revenue to marketing depending on factors like the state of the economy and customer volume.
• Research found that small businesses tend to spend between 7% and 8% of their revenue on marketing, while startups may invest between 3% and 5% until they are more established.
• The Business Development Bank of Canada recommends B2B businesses allot between 2% and 5%, whereas B2C businesses should spend between 5%-10%.

Clearly, some percentage makes sense to invest in marketing, just as you would with any other growth-focused metric.

How Much Should Businesses Typically Spend on Marketing?

Determining how much businesses should spend on marketing can vary depending on factors such as company size, industry, growth goals, and target audience. While there is no one-size-fits-all answer, industry benchmarks and best practices can provide some guidance.

These percentages are commonly used as a starting point for businesses, but it’s important to note that they are not set in stone. Different companies may have unique circumstances that require adjustments to these figures.

Some argue that dedicating a higher percentage of revenue towards marketing allows businesses to reach a wider audience and achieve more significant growth. On the other hand, conservative approaches maintain that a lower percentage is sufficient, especially when considering the rise of digital marketing channels and their cost-effectiveness.

Of course, the “go slow” approach can lead to your competitors passing you by. They are under no obligation to select the same growth targets. And, of course, you can’t really know what your competition is up to at any moment.

Case in point: one of our clients was recently purchased by a VC, and they immediately decided to 10x their Google Ads budget. The VC is clearly less concerned about short-term capital than the time required to dominate its market, no matter what budget it takes.

Ultimately, finding the right marketing budget allocation requires a balance between investing enough to fuel growth and ensuring profitability. It’s crucial for businesses to continually evaluate their marketing ROI (Return on Investment) and make adjustments based on the changing landscape and business priorities.

Factors Influencing Marketing Budget Allocation

When determining the ideal allocation of your marketing budget, it is essential to consider several factors that can greatly influence your decision. These factors will help you align your marketing objectives with your business goals and make informed decisions about where to allocate your resources effectively.

Let’s explore some key factors that can influence marketing budget allocation:

1. Industry and Market Trends: Different industries have varying levels of competition, customer behavior, and market trends. Understanding the unique dynamics of your industry will help you determine how much you need to invest in marketing efforts to stay competitive and reach your target audience effectively. For example, a highly competitive industry may require a higher marketing budget to stand out from the competition.

2. Company Size: The size of your company plays a significant role in determining the allocation of your marketing budget. Smaller businesses might allocate a higher percentage of revenue to marketing compared to larger organizations. This is because smaller businesses often need to establish brand awareness and acquire new customers.

3. Target Audience: Understanding your target audience is crucial in allocating your marketing budget efficiently. Conducting thorough market research will provide insights into the preferences and demographics of your target audience, enabling you to focus your resources on the most effective marketing channels for reaching them.

4. Competitive Landscape: Analyzing your competitors’ marketing strategies and budgets can give you a benchmark for planning. If your competitors are investing heavily in certain channels or campaigns (such as Google Ads, social media advertising, or SEO link building), it may indicate their effectiveness in reaching the target audience and capturing market share.

These are just a few examples of the factors that can influence the allocation of your marketing budget.

Another crucial aspect to consider is the impact of industry, company size, and the economy on budget allocation.

Impact of Industry, Company Size, and Economy

The industry you operate in can significantly impact how much of your gross revenue should be allocated to marketing efforts.

A highly competitive industry, such as fashion or technology, may require a larger marketing budget to keep up with the competitors and stand out in the market.

On the other hand, an industry with less competition may allow for a more conservative marketing budget allocation.

For instance, consider two companies: Company A operates in the highly competitive tech industry, while Company B operates in a niche market with limited competition. Due to the intense competition and constant need for innovation in the tech industry, Company A may allocate a higher percentage of its gross revenue to marketing to ensure brand visibility and customer acquisition. Meanwhile, Company B can allocate a smaller portion of its revenue to marketing since it faces less competition and may rely more on word-of-mouth or targeted advertising.

Company size also plays a role in determining the percentage of gross revenue allocated to marketing.

Smaller businesses typically allocate a higher percentage since they often need to invest more in building brand awareness and acquiring customers. Larger companies, with an established presence and customer base, might allocate a proportionately smaller percentage while focusing on retention and expanding through existing channels.

Naturally, economic conditions (which we seem to be talking about a lot here in Q4 2023) can impact marketing budget allocation. During times of economic downturn or uncertainty, companies may decrease their overall marketing budgets to conserve resources.

Conversely, during periods of growth and stability, companies might increase their marketing budgets to capitalize on opportunities for expansion. It’s critically important to take advantage of long-term marketing strategies (such as investing in SEO services) when times are good; you never know when the marketing will turn.

Understanding these factors is crucial when deciding on the right percentage of your gross revenue to spend on marketing. It requires careful analysis of your specific industry dynamics, company size, target audience, and economic conditions.

Effective Marketing Strategies on a Budget

Marketing plays a crucial role in the success of any business, regardless of its size or industry. However, when budget constraints come into play, it’s essential to make every dollar count. With that in mind, let’s explore some effective marketing strategies that can yield significant results even on a limited budget.

Firstly, leveraging content marketing can be a game-changer. By creating high-quality and valuable content that resonates with your target audience, you can establish your brand as an authoritative voice in your industry. This can be done through blog posts, articles, videos, or podcasts that provide useful information or insights related to your products or services.

For example, suppose you own a small fitness apparel company. You could create blog posts about workout tips, healthy recipes, or success stories from athletes wearing your products. By consistently delivering valuable content to your audience, you build trust and credibility while simultaneously attracting potential customers.

Another effective strategy is harnessing the power of social media. Platforms such as Facebook, Instagram, Twitter, and LinkedIn offer cost-effective ways to engage with your target market directly. Utilize these channels to share engaging content, interact with followers by responding to comments and messages promptly, and run targeted advertising campaigns to reach specific demographics.

Let’s say you manage a local bakery. Posting mouthwatering images of your freshly baked goods on Instagram and Facebook can entice potential customers in your area. Engaging with them through comments and direct messages could lead to inquiries and eventually more foot traffic to your store.

Additionally, don’t underestimate the strength of referral marketing. Encourage satisfied customers to refer their friends and family to your business by offering incentives such as discounts or exclusive promotions. Positive word-of-mouth recommendations can have a significant impact on expanding your customer base without breaking the bank.

Now you might be wondering if it’s worth investing in marketing when you’re on a tight budget. It’s understandable to have reservations, especially when every dollar counts. However, remember that effective marketing strategies can help you reach your target audience and generate revenue. By finding the right balance between cost-effective tactics and meaningful engagement, you can achieve significant results without compromising your financial stability.

Having explored some effective marketing strategies on a budget, let’s now shift our focus to maximizing return on investment (ROI) through digital and social media channels.

Maximizing ROI with Digital and Social Media

Digital and social media platforms have revolutionized the way businesses market their products or services. With billions of users worldwide, these channels offer unparalleled opportunities for reaching and engaging with a vast audience. To maximize your ROI when utilizing these platforms, consider the following strategies:

Firstly, define your goals and target audience. Before diving into digital and social media marketing, clarify what you want to achieve by setting specific, measurable goals. Whether it’s driving website traffic, increasing brand awareness, or generating leads, understanding your objectives will help shape your strategy.

Next, select the most appropriate platforms based on your target audience’s preferences. Different demographics gravitate towards certain platforms more than others. For instance, if you’re targeting younger audiences, focusing on platforms like Instagram or TikTok may yield better results compared to LinkedIn.

Once you’ve identified the platforms to focus on, develop compelling, tailored content that aligns with each platform’s unique format and features. Optimize your content for search engines by incorporating relevant keywords and hashtags to boost organic visibility.

Moreover, don’t overlook the potential of social media advertising to amplify reach and drive conversions. Platforms like Facebook Ads and Google Ads provide powerful targeting capabilities that allow you to segment your audience and deliver customized messages based on their interests, demographics, or past behavior.

Lastly, analyze and optimize your campaigns. Monitor key metrics such as engagement, click-through rates, and conversion rates to assess the effectiveness of your digital and social media marketing efforts. Use this data to refine your strategies, targeting methods, and content to continuously improve your ROI.

To better understand the importance of maximizing ROI with digital and social media, think of it as investing in a growing asset. By constantly evaluating and adjusting your strategies based on real-time data, you ensure that your marketing efforts yield optimal returns, just like a savvy investor would do in the stock market.

Now that we’ve explored how to maximize ROI with digital and social media, it’s time to delve into tailoring your marketing budget for your business’s specific needs.

Tailoring Your Marketing Budget for Your Business’s Needs

Allocating the right percentage of your gross revenue to your marketing budget requires a tailored approach that takes into account the unique needs and goals of your business. While industry benchmarks can provide a general guideline, it’s important to understand that each business operates in its own context, with different target audiences, competitive landscapes, and growth strategies. By customizing your marketing budget based on these factors, you can optimize your spending and maximize the return on investment.

For instance, consider a small e-commerce business that has just launched its online store. Its primary goal might be to increase brand awareness and acquire new customers. In this case, allocating a larger percentage of the marketing budget to digital advertising channels like social media ads or search engine marketing would make sense. On the other hand, if you have an established B2B consulting firm looking to expand its client base, investing in thought leadership content creation or attending industry conferences may yield better results.

To tailor your marketing budget effectively, start by understanding your customer journey. Map out the different touchpoints and interactions potential customers have with your brand from their first encounter to making a purchase or becoming a loyal advocate. By identifying which channels and activities drive the most value at each stage of the journey, you can allocate your resources accordingly.

Consider hiring a marketing agency or consultant if needed. They can bring expertise and strategic insights that align with your business goals while providing valuable guidance on how to allocate your marketing budget effectively.

Another aspect to consider when tailoring your marketing budget is content repurposing and updating.

Content repurposing is a cost-effective method of maximizing the value of existing assets such as blog posts, videos, or infographics. By repackaging content in different formats or adapting it for various channels, you can reach a wider audience without incurring substantial costs.

Content updating is equally important. As you grow your business and gather new data or insights, it’s crucial to refresh and optimize existing content to reflect the latest industry trends and customer needs. This ensures that your marketing efforts remain relevant and impactful.

Prioritize the channels that drive revenue for your business. Analyze your past marketing performance and identify which channels have generated the most leads or sales. By focusing your budget on these high-performing channels, you can maximize your return on investment while still experimenting with new opportunities.

Establish clear performance metrics to measure the effectiveness of your marketing initiatives. Set specific goals and track key performance indicators (KPIs) such as website traffic, conversion rates, or customer acquisition costs. By regularly monitoring your results, you can make data-driven decisions and adjust your budget allocation accordingly.

Let’s say you’re a software-as-a-service (SaaS) startup aiming to increase sign-ups for a free trial of your product. You set a goal of acquiring 500 sign-ups per month through various marketing channels. After analyzing your performance metrics, you discover that paid search campaigns are driving the majority of qualified leads at a lower cost per acquisition compared to other channels. In this case, it would be wise to allocate a significant portion of your budget towards optimizing and scaling those paid search campaigns.

Leverage automation and technology to maximize efficiency and productivity. Marketing automation tools can streamline repetitive tasks, such as email marketing or social media scheduling, freeing up time for strategic planning and analysis. Additionally, investing in analytics platforms can provide valuable insights into consumer behavior, allowing you to refine your marketing strategies further.

In conclusion, when it comes to allocating the right percentage of gross revenue to your marketing budget, there is no one-size-fits-all solution. Tailoring your marketing budget based on your business’s unique needs, goals, and target audience is key to achieving optimal results. By understanding your customer journey, investing in content repurposing and updating, prioritizing revenue-driving channels, establishing performance metrics, and leveraging automation and technology, you can make the most out of your marketing budget and drive sustainable growth for your business.