Calculating Your Marketing Budget

What’s Your Marketing Budget?

When meeting potential clients we always have to ask the dreaded questions, “What is your marketing budget?”. Typically we get a blank stare and a shrug…and that’s okay! Unless you’re in the industry, most people don’t think about how much money goes into a steady marketing campaign. A good marketing agency won’t try and sell you on what you can’t afford, but try and figure out what will work best for your situation. All companies are different and depend on individual needs, but we have figured out a simple way to get your business on the right track for planning your budget. Now it’s time to whip out that calculator and figure out your true marketing budget.

Calculating Revenue

One of the first steps to figuring out your marketing budget is to establish your total revenue.

Talk to your CFO, financial department, or accountant and figure out your gross revenue or estimated revenue.

Gross Revenue – Revenue received before any deductions or allowances, as for rent, cost of goods sold, taxes, etc)

Estimated Revenue – Amount of earnings projected for a given accounting period. This calculation can be important for a number of financial activities including estimating taxes due, budgeting, and issuing statements to shareholders and interested members of the public (wisegeek).

For our example, we will say that our company’s gross revenue for this accounting period is $100,000.

Company Size

Are you a new up-and-coming company or an older, established company? Typically new companies are truly the ones that need to push their marketing. They are trying to establish their brand and gain loyal customers. Established companies, while they should always be marketing, don’t have to push as hard; customers know their name and will purchase without even giving it a second thought (think Kleenex).

For our example, let’s say our company is an up-and-coming startup, have been around for about 2 years, and have 13 employees.

Marketing Budget

New Companies

For those new companies, at least 12%-20% of your gross revenue should be allocated to marketing. That seems like a lot, doesn’t it? Especially for a smaller company!

Well, think about it this way; You have this amazing new product or service – a major game-changer in your industry. But, no one is buying. Why? Well, probably because they have no idea it’s even a real thing yet. Word of mouth only does so much and new companies need to take their business to the next step. Marketing should be a major focus of these young companies; not only does it bring in new customers and leads, but establishes your brand in the industry. Once your brand is established, you can definitely discuss bringing down your marketing budget.

Established Companies

For established companies, at least, 6%-12% of your gross revenue should be allocated to marketing. But why so little compared to those little companies? As previously mentioned, established brands don’t need to market as heavily. They have their loyal customers that really aren’t going anywhere. While they still need to market, they certainly don’t need to allocate as many resources as a small company.

For our example, our small company with a revenue of $100,000 has decided to allocate 15% of their gross revenue to marketing. By taking our revenue (100,000) and multiplying it by our marketing percentage (.15), we have come to a marketing budget of $15,000 for our accounting period.

See, math can sometimes be easy.

While there is no magical number for each and every company when it comes to their marketing budget, these percentages are a great starting point so your brand can get started on your marketing strategies.

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