How much to spend on a marketing budget?

As marketers, we ask questions about budgets often, but rarely get an answer. Perhaps for fear that we’ll spend it, but we suspect more likely that it’s not considered and allocated. Did you think about how much to spend on your marketing budget this year?

So, as the end of the Australian financial year approaches, we thought it would be a good time to share some industry insights about what, really, you should be investing in your marketing.

Calculator on top of a budget sheet

Invest, don’t spend on your marketing budget

And we say investing (as opposed to spending) because no matter how wonderful your product/service/company/advice/after-service is, you’ll struggle to be successful if the right people don’t know about you.

A quick Google search will reveal advice around investing a percentage of turnover into your marketing (we’ll save you the search, marketing budgets make up an average of 11% of total company budgets), but there are a variety of additional influences on that decision. We explore 4 key elements that should make up any budgetary decisions below:

1. What falls into the marketing budget?

Marketing is more than shelling out cash to advertise your wares: it is about every touchpoint your brand has with customers, prospects and the market. For the purposes of setting how much to spend on a marketing budget, I encourage you to consider beyond what you need to invest with third party suppliers in advertising. Marketing mix (the actual activity that falls out of good research and strategic planning) can broadly be split across 3 sectors:

–        owned (think website, blog content)

–        earned (PR, Facebook engagement) and

–        paid (print advertising, paid search) mediums.

The resource, skill and spend you will need for your business for the forthcoming year should be considered with a mix of activity in mind.

2. Where is your company in its lifecycle?

If you’re a new company yet to celebrate your fourth-ish birthday, then you will have to work harder to earn that initial share of voice, awareness and loyalty. Expect to invest anywhere between 12 and 20% of your company’s total budget to achieve this.  

If you’re a more established company, you’ll already have earned some market share, brand awareness and positive loyalty. This is what you have invested in marketing to build and thus you’ll be able to look at a slightly reduced marketing budget (c. 6-12% dependent on goals, industry etc.)

Perhaps you’re an established organization, but looking to branch out into new markets or offer new products, then you’ll want to factor that into how much you spend on your marketing budget. You really do need to speculate to accumulate. We always recommend some sort of market research before taking the plunge to invest in developing market share. The insights that market research delivers gives both confidence that the investment will return, and an indication of how challenging your new market is going to be to reach and influence. (Conversely of course research might tell you the opposite of these things, in which case you can back away quietly from that idea!).

3. What are your business goals?

Are you seeking to build your brand’s value? Are you just wanting more sales? Are you looking to launch a new product or service or launch into a new market place? Or perhaps you need to create a whole new way for your customers to buy from you. And what time period are you looking at? Understanding where you’re at and what you’re looking to achieve is a critical element in setting what you are willing and able to invest to get there.

And don’t forget that your current customers form a critical element of achieving your goals. It’s all good and well having growth aspirations and focusing on getting new customers, but the unspoken element of a growth strategy is often maintaining the base from which you can then grow. To this end, retention activity and investment should form part of your marketing mix when you are determining how much to spend on your marketing budget.

4. What industry are you in?

Different industries and sectors will clearly have a myriad of differences. Different margins, varying levels of competition and market opportunity will all influence budget allocation. In some industries, it simply costs more to reach the target market. The graphic below gives an indication of average spend according to industry as a guide:

Breakdown of marketing budgets by industry with consumer packaged goods using 24% of a company's overall budget.

Want help figuring out your marketing budget?

These are just a few elements to consider when deciding how much to spend on a marketing budget. But the one constant is that on average the most successful businesses in terms of profitability are the ones that invest in marketing.

If you would like to discuss your marketing activity and budget for the upcoming financial year, the team at PIER would be delighted to meet you and offer a complimentary review of your marketing plan.