The U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for social media marketing and advertising if you’re doing less than $5 million a year in sales and your net profit margin — after all expenses — is in the 10 percent to 12 percent range.
Some marketing experts advise that start-up and small businesses usually allocate between 2 and 3 percent of revenue for marketing and advertising, and up to 20 percent if you’re in a competitive industry.
Still, other marketing experts counsel a range between 1 percent and 10 percent and even more depending on how long you’ve been in business, competitive activity and what you can afford.
In 2010 the Chief Marketing Officers, or CMO, Council conducted a survey of its 6,000 chief marketing officer members to assess marketing and advertising spending across a wide range of industries.
The survey results revealed that 58 percent of chief marketing officers spent less than 4 percent of gross revenue on marketing, 16 percent spent between 5 and 6 percent, 23 percent spent more than 6 percent, while 2 percent spent more than 20 percent.
This survey seems to suggest that if you set your spending level between 0 percent and 6 percent of gross revenue, you will be in good company that includes 74 percent of the CMO Council membership.
New companies: For companies that have been in business for one to five years, we suggest using 12 to 20 percent of your gross revenue or projected revenue on marketing.
Companies less than a year old, tend to need to ramp up before spending marketing dollars.
Established companies: For those companies that have been in business more than five years and have some market share/brand equity, we suggest allocating between 6 and 12 percent of your gross revenue or projected revenue.
While this may seem like a lot, remember new and emerging brands are looking to capture new market share and develop brand recognition with an audience that has absolutely no idea who they are.
That’s why it’s so expensive.
Once the brand is established and a portion of the market is brand-conscious that number drops significantly.
Rule of Thumb for Social Media Marketing
As a general rule of thumb, companies should spend around 5 percent of their total revenue on marketing to maintain their current position.
A local marketing company looking to grow or gain greater market share should budget a higher percentage—usually around 10 percent.
This percentage, of course, will vary by company and industry.
For example, companies in highly competitive industries—such as retail, consumer products, and pharmaceuticals—often spend 20 to 50 percent of their net revenue on marketing.
Using the general rules of thumb, calculate your company’s ideal marketing budget below:
Total Revenue x 5% = Marketing budget required to maintain current awareness and visibility
Total Revenue x 10% = Marketing budget required to grow and gain market share.
Is 10% the Magic Number for Social Media Marketing?
According to a 2014 Gartner Research study, “companies spent on average 10.2% of their annual 2014 revenue on overall marketing, with 50% of companies planning to increase [in 2015] to an average of 10.4%.”
Ten percent — the magic number you will likely hear whenever you ask how much of your revenue you should spend on marketing.
But is that true for everyone?
What about a company in its growth phase vs. a well-established brand like Apple?
Is 10% really the magic number and if so, what does a 10% investment in marketing get you in ROI?