What if previous efforts haven’t generated results, or you don’t have sufficient data to use goal-based budgeting? Your best option may be revenue-based budgeting. This method involves using a percentage of projected revenue to set the marketing budget. For example, if you generated $10M in revenue in 2017 with a $500K marketing budget and intend to increase revenue by 10 percent in 2018, your marketing budget should increase to $550K accordingly.
Generally speaking, though it certainly varies by industry, companies with at least six-figures in revenue that are looking to maintain their current standing should spend about five percent of total revenue on marketing efforts. Those looking to grow or gain market share should spend closer to ten percent. (Source: frog-dog.com)
Now, there are several additional aspects to consider with the revenue-based method to better fine-tune your marketing budget – your industry, what you’re selling, who you are selling to, and years in business. The Fuqua School of Business at Duke University sponsored the CMO Survey, which shows B2C companies spend more than B2B companies at nine percent versus seven to eight percent. Additionally, those selling services spend more than those selling products. (Source: Web Strategies) And the newer your company, the more you’ll have to spend to create brand awareness and convert customers.
As with all marketing efforts, there isn’t a magical one-size-fits-all approach to setting a marketing budget. Do your homework and evaluate past efforts with a critical eye. Don’t be afraid to revisit previous efforts that delivered, just for the sake of innovation. And conversely, don’t continue with poor-performing tactics simply because they are known and familiar.
Rachel Carpenter, Marketing Strategist at RedRover Sales & Marketing Strategy, can be reached at www.redrovercompany.com.