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How to Calculate Your Marketing Budget

How to Calculate Your Marketing Budget

How to Calculate Your Marketing Budget.

The U.S. SBA recommends spending 7-8% of gross revenue towards advertising and marketing if you’re generating under $5MM a year in total sales, and net profit margin (after all direct and indirect expenses, including marketing) is 10-12%.

Example Marketing Budgets.

Company A generates $200k/year in revenue.
At 8%, the marketing budget would be $16k/year or $1.33k/month.

Company B generates $500k/year in revenue.
At 8%, the marketing budget would be $40k/year or $3.33k/month.

Company C generates $8MM/year in revenue.
At 5%, the marketing budget would be $400k/year or $33.33k/month.

Our Honest Recommendation

We don’t believe that you should spend 100% of your marketing budget on any one given thing. In fact, we recommend that every business ‘test’ its marketing budget. That means spending 50% on real-world or guerilla marketing, and 50% on digital marketing.

Real-world marketing might include:

  • Local magazines
  • Sponsoring school sports teams
  • Traditional print ads
  • Traditional mailers
  • Business cards
  • Street signage
  • Chambers of commerce
  • etc.

Digital marketing might include:

  • Social media
  • Search Engine Optimization (SEO)
  • Google Advertising
  • Influencer campaigns
  • Press releases
  • Paid promotions and collaborations
  • Email campaigns
  • SMS campaigns
  • Affiliate marketing
  • Etc.

It is our personal belief that every business should first spend equally on both physical and digital marketing activities so that they can find out which activities provide the highest ROI. In order to get enough data to make sound decisions as to which performs best for your business, we recommend you spend 3-12 months on each marketing activity.

Yes, 3-12 months is quite the range, but hear us out. You can tell pretty quickly if a paid advertisement is driving business, usually within 1-3 months. Something more organic, like sponsoring a school sports team, joining a chamber of commerce, or search engine optimization, will take more time to build authority and trust before you can really start making some real significant sales.

We know what you’re thinking….

That’ll take years to find the best marketing channel!

Yes and no. It’ll only take that long if your budget is extremely limited. If you have the budget to spread across each marketing channel, you can easily find out what works best for your business within a year.

As the cost of real estate and overhead goes up across the world, we are seeing more businesses investing more in digital marketing services with companies like ours. It’s our belief that digital marketing is the future of how businesses will drive the far majority of their sales in the future, excluding their physical location.

One of the best ways anyone can future-proof their business is by investing in long-term growth solutions such as organic search engine optimization, building a sizeable social media following, email list, affiliate network, and partnerships in adjacent industries.

Marketing Budget Conclusion

There are a lot of ways to ‘sell’ what you offer, and increase your brand awareness, but every industry is different and some marketing channels will work better than others. We recommend you test every marketing channel for a fair amount of time to find out what works best for your business. If you ever want help navigating how to structure your budget, schedule a call with any one of our digital marketing experts and we’d love to help!

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