How much of my revenue should be spent on marketing?

It’s a fair question. A company should spend 2-10% of their annual revenue on their marketing budget. Hence, a company with $1M in revenue should be spending between $20k and $100K on marketing.

Many companies that have gotten by without marketing have no benchmark for spending. Perhaps their business has finally grown to a certain level—or slipped down due to competitors—and they know they need to start marketing themselves. The problem is, they don’t know what they should be spending. There are not many helpful articles on the subject, either.

Here are some key factors to consider before committing to a budget:

  1. What is your annual revenue?
  2. What industry are you in?
  3. What are your competitors doing?
  4. What are your business goals?
  5. What stage is your business in?

Typically the smaller your business, the larger of a percentage you will need to invest out of this range to make a splash in the market. Below is a chart of what a 2-10% annual marketing budget looks like for businesses of varying size.

Recommended spending based on organizational revenue:

Revenue

2%

4%

6%

8%

10%

$500,000
$10,000
$20,000
$30,000
$40,000
$50,000
$1,000,000
$20,000
$40,000
$60,000
$80,000
$100,000
$5,000,000
$100,000
$200,000
$300,000
$400,000
$500,000
$20,000,000+
$400,000+
$800,000+
$1,200,000+
$1,600,000+
$2,000,000+

Where you fit into that percentage range is factored by bullets 2-5 above. Internal costs can be considered included in the figures above if you do certain items in-house.

How much of my marketing budget should go to our website?

The website is one part of an overall marketing budget. Let’s look at the following questions to help determine this:

  1. What marketing efforts do you currently do for your business?
  2. On a 1-10 scale, how important is (or should) your website to your organization?
  3. Roughly estimate what percentage of your current customers or potential leads will visit your website when evaluating your organization as an option?

Depending upon your answers, your website, which we’ll say includes online marketing, may represent a significant part of your total marketing budget. To make this easier, let’s say you value online marketing and have decided 75% of your marketing budget should go into your website and marketing it.

Back to our example of a $1,000,000 revenue company, that means an investment of $15,000–$75,000 should be made into your website annually.

Most companies we partner with understand this figure and others are honestly shocked at spending that much (or more) on their website. The companies that are shocked by these numbers tend to be inexperienced and either do not value the work involved in a corporate website, or they have no idea how much work it is and how many factors are involved.

How should I break up my website budget to get the most return?

That web budget may be split up between creating or redesigning the website, updating the website, keeping content fresh and relevant, search engine marketing, social media marketing, email marketing, etc.

What percentage each of these items represents to your website spending is unique to each organization. Figuring that out is essentially what our teams do for our clients. We have Project Managers, Strategists, Designers, Developers, Content Marketers, and Information Architects. They work directly with organizations to define online marketing goals and execute plans.

Below is a sample breakdown (not a recommendation) for our hypothetical organization doing around $1,000,000 in revenue annually. Let’s say they chose to spend 7% of revenue on their marketing budget and furthermore determined they want to spend 75% of their overall marketing budget on web-related services. That leaves us with a $52,500 annual web specific budget [($1,000,000 x 7%) x 75%].

Here’s how that might break down:

Website design & updates

SEO

Mobile Advertising

Social Media Marketing

Email Marketing

Ongoing strategy & planning

35%
15%
20%
12.5%
5%
12.5%
$18,375
$7,875
$10,500
$6,562.50
$2,625
$6,562.50

In this example, 35% of the available web budget went to creating and redesigning and keeping the website up to date. While that exact percentage will vary depending upon the organization, that’s a fairly common percentage.

Even after you have initially created your website, each year your organization should be keeping the site fresh and updated and should be looking towards the next redesign of the website. The typical shelf life of a website for a business is 18–24 months. Your organization should be going through the process of determining how the site will continue to grow and reflect your organization and its goals.

What if I can find it cheaper online to create a site?

When we break these numbers down for business we sometimes hear back, “Well… I got a quote from [X-freelancer or company] who says they’ll do the site for $2,500.” It’s like watching those first-time home-buyer shows on HGTV. You see these young couples demanding mansions with granite and hardwood everywhere, but no conception of the real estate market. Their eyes pop when they realize you actually have to pay for nice things.

Our response is simple. Do you really believe that a company has the knowledge and ability to handle your most important and influential piece of communication? Are their offerings apples to apples with what we are proposing? We build high-performance, custom sites, not cookie-cutter theme sites.

We include several factors in our work that even large, well-known agencies ignore: 

  1. Building the site to be accessible to those with disabilities (65,000,000 Americans) to AA level.
  2. Ensuring that your colors are distinguishable to color blind individuals (8% of men and .5% of women)
  3. Creating enough color contrast so viewers over 45 can easily read your content.
  4. We write GDPR-compliant privacy policies for our clients.
  5. Writing content that solves customer problems instead of bragging, is mobile-and search-friendly meets audience expectations, stays in the brand tone of voice, remains topical, and meets your audience’s readability level.
  6. We provide a secure, hosting and staging environment and include your SSL (the “https” security lock) by default.

Too many businesses that have gone the route of low-cost web solutions (like Wix and Squarespace), which is why a large majority of sites on the web today look identical and don’t meet the company’s business goals. That’s not us.

We hope this article was helpful. If you need help with marketing, your website, or have questions we didn’t answer in this post, contact us. No pressure.

This post originally appeared on the Element5 blog in November 2010. This is an updated version.

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Author

Dave Linabury

Director of Strategy

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    Comments:

  • Dave Linabury

    Sep 25, 2018

    Thanks, Patti! Yes, it certainly gets more detailed by platform, strategic need, and industry, but for general purposes, this post is a good place to start. Good points!

  • Patti

    Sep 24, 2018

    Hi Dave. Enjoyed the post. Wondering if time spent with each medium also figures into formula?

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