Through Updated March 01, 2019
Budgeting for marketing and advertising is a tall order for many small business owners due to the many ways to approach the task. Percentage of gross income is one of the most popular budgeting methods because it allows your expenses to fluctuate as your income does. In the real world, however, marketing and advertising budgets vary widely depending on your industry, competition, profit margins, and a host of other considerations.
Although the percentage of spend varies widely, the SBA recommends that small businesses allocate 7-8% of their gross revenue to marketing and advertising.
Marketing by percentages
The US Small Business Administration recommends spending 7-8% of your gross income on marketing and advertising if you have less than $ 5 million in sales per year and your net profit margin – after all expenses – is between 10. and 12%. range.
Some marketers advise startups and small businesses to typically allocate between 2% and 3% of their income on marketing and advertising, and up to 20% if you are in a competitive industry. Other marketers advise a range between 1% and 10%, or even more, depending on how long you have been in business, how competitive you are, and what you can afford.
From these divergent opinions, it appears that the percentage of gross revenue for marketing and advertising mainly depends on who you ask. They are probably all right if you know their assumptions.
Real-world research revelations
A 2016 survey of 168 marketing managers found that marketing budgets represent up to 40% of a company’s budget, with a median of 10% of the overall budget and an average of 12%. When reported as a percentage of overall sales, the average was 8 percent and the median was 5 percent.
There is a limit to how much you can afford to spend, no matter what others are spending. Let affordability guide your spending. Next, recognize that there are internal and external factors that can cause your spending to fluctuate. Starting a business or introducing a new product requires more expense than expense for an ongoing business. Conversely, you might want to cut back on marketing spend while you activate your exit strategy if your business is in its twilight years.
If you sell expensive, high-margin goods or services, you can afford to spend more on marketing. Likewise, if the competition is right for you, you may have no choice but to increase your marketing spend.
Marketing generates revenue
Marketing generally generates income rather than the other way around in most successful businesses. Additionally, marketing and advertising expenses in most successful businesses are task or project driven. Task-based marketing requires a marketing plan, which most marketers highly recommend. Calculating the percentage of gross income is a useful rough indicator of spending parameters. But, you need to be flexible depending on the requirements of your marketing plan. You may be able to get specific marketing as a percentage of your industry’s gross revenue figures from your trade association.