How much should you spend on marketing?
The percentage of revenue spent on marketing compared to the growth rate of a company is not a fixed or universal ratio, but rather depends on various factors such as the industry, the size, the profit margin, and the goals of the company. However, some general guidelines and averages can contain valuable information.
The Small Business Administration advises that companies with less than $5M in revenue should invest about 7-8% of their revenue into marketing. However, that may be too low. If a company wants to maintain its current sales amounts, then 5-10% of its revenue should be spent towards marketing, depending on the amount of growth that a company can scale effectively for, as well as the effectiveness of the marketing itself.
The average marketing spend in 2022 was about 9.5% of company revenue. The highest growth rate companies tend to spend more than 15% of their revenue on marketing. Lowest growth rate companies spend closer to 5% of their revenue on marketing. In 2023, the average marketing spend is closer to 10.9% of a company’s revenue.
While there is a positive correlation between the percentage of revenue spent on marketing and the growth rate of a company, the exact relationship may vary depending on the specific circumstances and objectives of each company. A company would not want to grow too fast if they are not able to scale effectively. Likewise, a company would not want to invest too much into marketing if they were not clear on the ROI of each type of marketing campaign.
Therefore, it is advisable for companies to conduct a thorough analysis of their market, competitors, customers, and goals before deciding on their optimal marketing budget.
A company can know the effectiveness of various marketing methods by measuring and analyzing different metrics that relate to their marketing objectives, goals, and strategies. Some of the common metrics that can help evaluate marketing effectiveness are:
Revenue: This metric shows how much income is generated by the marketing efforts. It can be calculated by tracking the sales conversions that are attributed to the marketing campaigns or channels. Revenue can also be compared to the marketing costs to calculate the return on investment (ROI) or return on marketing investment (ROMI).
Pipeline growth: This metric shows how many new leads or prospects are generated by the marketing efforts. It can be measured by tracking the number of inquiries, downloads, sign-ups, or other actions that indicate interest in the product or service. Pipeline growth can also be segmented by the source, channel, or campaign that generated the leads.
Conversion rate: This metric shows how many leads or prospects are converted into customers or sales. It can be calculated by dividing the number of conversions by the number of leads or prospects. Conversion rate can also be segmented by the source, channel, or campaign that influenced the conversions.
Retention rate: This metric shows how many customers or sales are retained over time. It can be measured by tracking the number of repeat purchases, renewals, referrals, or other actions that indicate loyalty or satisfaction. Retention rate can also be segmented by the source, channel, or campaign that nurtured the customers.
To measure these metrics, a company needs to have a clear and consistent way of collecting, tracking, and analyzing data from various sources and platforms. Some of the tools that can help with this process are:
Web analytics: These tools can help measure the traffic, behavior, and conversions of the website visitors. They can also help track the performance of the web pages, landing pages, forms, and calls-to-action. Some examples of web analytics tools are Google Analytics, Adobe Analytics, and HubSpot Analytics.
Social media analytics: These tools can help measure the reach, engagement, and conversions of the social media followers. They can also help track the performance of the social media posts, stories, ads, and influencers. Some examples of social media analytics tools are Facebook Insights, Twitter Analytics, and Instagram Insights.
Email marketing analytics: These tools can help measure the deliverability, open rate, click-through rate, and conversions of the email subscribers. They can also help track the performance of the email campaigns, newsletters, and automation. Some examples of email marketing analytics tools are Mailchimp, Constant Contact, and AWeber.
CRM analytics: These tools can help measure the quality, quantity, and value of the leads, prospects, and customers. They can also help track the performance of the sales pipeline, funnel, and cycle. Some examples of CRM analytics tools are Salesforce, Zoho, and Microsoft Dynamics.
By using these tools, a company can gather and analyze data from various marketing methods and compare them to their objectives and goals. This can help them identify what is working and what is not, and make necessary adjustments and improvements to optimize their marketing effectiveness.
