Welcome to Credo’s marketing budget calculator! One of the most common questions our team of matching experts gets asked is “How much should I spend on marketing?”
Your marketing budget should be based not on how much you want to spend, but rather how much you need to spend to achieve your business goals. Business goals drive marketing budget, not vice versa. When marketing budget needs don’t match up with expectations, it’s important to reset your expectations for results.
It is important to establish a marketing budget at your company because it’s hard to make a decision about spending on a new initiative when you don’t understand where you are already spending and how much you are able to spend.
Like many things in business, marketing budgets are fluid and constantly need to be updated. Here at Credo for example we review our marketing expenses monthly as well as the results, and then make decisions from there about increasing or decreasing or maintaining
Based on how revenue grows (or doesn’t), we then make changes to our marketing and other budgets based on where we think the greatest need is.
Marketing budgets let you invest with confidence because the spend is already accounted for in your business.
Here are benchmarks for percentage of total revenue companies spend on marketing based on their aggressiveness for growth:
|Percent of Gross Revenue||SBA Average Guide|
|4%||Medium / Low|
|10%||Medium / High|
|14%||Growth / Aggressive|
|16%+||Startup / Aggressive|
Calculating your marketing budget is both a straightforward exercise as well as potentially a complicated one.
There are a few numbers you need to know before you calculate your marketing budget:
An additional metric that is nice to know but necessarily required is current customer annual value, meaning how much an average customer/client pays you per year. After all, not all customers are created equal!
Setting marketing goals comes down to knowing the above metrics so that you can calculate how much it will cost to reach your goals.
If you know for example that you need an additional 100 customers and it costs your $1,000 to acquire a customer that pays you $12,000 per year, you need to plan to spend $100,000 over the next year to acquire those additional customers.
You also know that if you hit these goals, you’ll add $1.2M in revenue to the company off just $100k in spend. When looked at it that way, as an investment into company growth, that $100,000 (or $8,333 per month) isn’t such a big expense.
It’s also important to remember that marketing goals have to be flexible based on your budget. It is impossible to get improved results with your same marketing spend, especially when you don’t change anything. After all, as the famous quote says:
The definition of insanity is doing the same thing over and over again and expecting a different result.Albert Einstein
To improve results, one can first optimize current activities but to truly grow you’ll need to invest more. We often see that companies don’t invest more because their marketing channels are not profitable for them, or don’t know if marketing channels are profitable.
Once you find a profitable marketing channel, the sky should be the limit until it becomes less or unprofitable. At this point, you repeat the cycle.
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