What Percentage of Revenue Should You Spend on Marketing?

You should aim to invest between 5% and 20% of your revenue in marketing, depending on whether you want to sustain or grow. Learn how to calculate your marketing budget from top digital marketing agency experts.

Marketing without a clear budget leaves the door open for overspending and revenue loss (cue violin shrieks from Alfred Hitchcock’s “Psycho”).

For an effective marketing strategy that drives results, you need to determine your budget first.

Unless you’re a new startup without revenue or capital, you’ll typically dedicate a portion of your total (gross) revenue to your marketing initiatives.

So, what percentage of revenue should be used for marketing your business?

HawkSEM’s CEO and co-founder Sam Yadegar delivers expert advice on how to estimate the right budget and balance your profit margin with your marketing goals for the ultimate return on investment (ROI).

How much should you spend on marketing?

Your marketing budget needs anywhere from 5% to 20% of your revenue to thrive. Generally, 5%-10% is enough to sustain, but you’ll need 11%-20% in data-driven marketing campaigns to grow.

What’s included in a marketing budget?

A marketing budget covers all expenses pertaining to digital marketing, traditional advertising, outreach events, tools, technology, in-house marketing team salaries, and agency services, such as:

• Advertising costs: Paid search, social media ads, display and retargeting ads, and traditional media.
• Content marketing costs: Content writing, video creation, editing, publishing, and promotion.
• Marketing tools: Analytics and reporting, customer relationship management (CRM), SEO tools, email marketing, and social media management tools.
• Campaign and event expenses: Influencer partnerships, travel costs for events, contests, and giveaway costs.
• Website and SEO: Website hosting and maintenance, landing page creation and optimization, SEO audits and technical fixes, UX and design updates.
• Agencies, freelancers, and in-house employees: Salaries, hourly rates, and training and development programs.

How you allocate marketing funds can vary according to a few different factors.

Factors that influence your marketing budget

Each budget will vary depending on the business industry, goals, and revenue.

Here are the factors that will influence your marketing budget:

1. Business goals
2. Industry
3. Company size
4. Location
5. Brand maturity
6. Market competition
7. Economic climate
8. Product/service life cycle
9. Marketing channels used

(Image: Adobe Stock)

1. Business goals

Do you want to increase your market share? Enhance brand awareness? Attract new customers?

Get super clear on what you want your marketing to achieve. Then, translate those goals into key performance indicators (KPIs) so you can strategize your marketing budget and measure your strategy’s progress later.

The more aggressive your goals, the more revenue you’ll need for your marketing budget. A good rule of thumb, according to Yadegar: 5%-10% to sustain and 11%-20% to grow.

Since we’re all about data-driven decisions at HawkSEM, here are Yadegar’s go-to KPIs for marketing success:

• Cost per conversion
• Conversion rate
• The lifetime value of conversions

For example, if your cost per conversion is too high, put more money into channels that produce better results.

Here’s the best part: Yadegar says you don’t need to harness these metrics all on your own.

ConversionIQ (our proprietary tech for marketing data centralization and optimization) keeps tabs on all your vital metrics and helps you calculate your budget to maximize return on ad spend (ROAS).

Now, that’s the kind of marketing tech that pays for itself.

2. Industry

Average marketing budgets vary from industry to industry.

According to a 2024 CMO survey by Deloitte, some marketing budget benchmarks (identified by percentage of revenue) for different sectors are:

• Banking and finance: 14%
• Communications: 12%
• Consumer goods: 18%
• Consumer services: 2%
• Education: 4%
• Energy: 6%
• Healthcare: 12%
• Insurance: 14%
• Manufacturing: 14%
• Mining and construction: 4%
• Real estate: 12%
• Retail wholesale: 13%
• Technology: 31%
• Transportation: 8%

Only 4% for construction and 31% for technology? While it might warrant a double-take, factors like regulations, competition, spending patterns, and customer acquisition costs (CAC) influence each niche.

Therefore, each one needs a unique approach to marketing.

Think about the healthcare space. This industry is filled with complex offerings, regulations, and sensitive health decisions. That means its marketing has to prioritize education and trust, which usually means more resources.

Brands in this industry also face fierce competition, which calls for more substantial marketing activities, like larger-scale awareness campaigns that boost brand authority even if they don’t result in as many conversions right away.

We know what you’re thinking: Finance is just as competitive, regulated, and sensitive. So, why the stark contrast? Simply put, it’s the nature of the industry.

Banks and financial institutions tend to have a solid customer base. And their regulatory constraints, while also rigid, can limit the scope of their marketing efforts.

Another deciding factor: how big is your brand?

3. Company size

The size of your company also impacts your ideal marketing budget percentage of revenue.

It’s only natural that larger, more established enterprises (like Target and Google) have seemingly limitless marketing budgets. In contrast, small businesses and startups tend to have expense constraints.

So, what’s a good baseline?

The U.S. Small Business Administration says typical marketing spending for profitable businesses making less than $5 million in sales annually is about 8% of the total revenue. Some new companies start with just 1%-3%.

The point is everyone’s gotta start somewhere, right?

For mid-sized brands and industry titans, there’s more wiggle room with marketing spend. Mid-sized businesses generally invest around 10%, while larger enterprises start at about 15%.

4. Geographic location

Marketing costs are not universal, even if they’re digital.

Take pay-per-click (PPC) marketing, for example. Even when it comes to the same product or service, your ad costs can differ drastically depending on where you target.

For example, Worstream’s recent study touts that Alabama and West Virginia have CPCs 78% and 60% greater than the U.S. average, respectively.

(Image: Adobe Stock)

Geographic factors that affect marketing costs

There are a few reasons for these variances:

• Competition: If many brands target the same keywords and audience, costs per click can increase
• Audience: Marketers are willing to spend more to reach higher-income regions; therefore, click costs may rise
• Ad relevance: Ads that are highly relevant to a specific audience get more clicks; therefore, they have a better return on ad spend (ROAS)
• Quality Score: Ads with better quality scores garner better placements and lower click prices
• Ad targeting: Targeting smaller geographic regions can raise the click price because the audience size is smaller

The same goes for traditional advertising. While it’s generally more expensive than digital marketing, certain factors can boost the costs. For instance, distribution and logistics expenses for physical promotions or design and production for TV advertising.

What does this all mean for your marketing budget? There’s no one-size-fits-all answer. The percentage of revenue you allocate should be flexible to your target geographic markets’ unique costs and opportunities.

5. Brand maturity

Earlier, we discussed how hard it can be for startups to allocate enough funds for a strong marketing strategy.

But it’s a catch-22. Startups and small businesses have tighter digital marketing budgets. Yet, as newcomers, this is when investing heavily in marketing is most crucial.

Yadegar says younger companies should invest more and drop that percentage as a company matures. That baseline is usually an aggressive 15% to 20%.

But funneling such a large chunk of your revenue into marketing, especially when you’re just starting, feels scary. We get it. But the payoff is well worth it.

6. Market competition

Is your brand operating in a saturated market, or are competitors few and far between?

The more competition you have, the heftier your marketing budget will need to be. This will help you stand out and get a piece of the pie (ahem, market share). When competition is scarce, however, you have less need for aggressive advertising and promotion.

Take B2C companies. Yadegar says they usually spend more on marketing than B2B companies.

The reason? In addition to faster product cycles (more on this in a bit) and a broader audience, they also have higher competition.

This is why we weave competitive research into almost every strategy for our clients.

Sure, it helps to know how much your rivals spend on marketing. That way, you know how much you should invest to compete. But it’s not just about keeping up with the Joneses. You have to look at the bigger picture, too.

7. Economic climate

In 2024, Gartner reported marketing budgets experienced a notable decrease across industries, with the average budget dropping from 9% of company revenue in 2023 to just over 7%, marking a 15% year-over-year decline.

One thing’s certain: the economy is forcing brands to be more cautious and strategic with their marketing investments.

Of course, these numbers don’t come as a surprise. When the economy’s on fire, marketing budgets are usually the first to feel the burn.

However, some marketing experts suggest this could be a mistake. Instead, investing more company revenue into marketing during economic downturns is the smarter move.

And it’s not just because it benefits them. Besides the obvious (driving sales), it’s in your best interest, too. Here’s why:

• Radical changes to your marketing plan can be a sign of instability. Maintaining your marketing activities shows that your brand can hold it down even during periods of economic hardship.
• As your competitors dilute their marketing, you get an opportunity to shine. When you maintain (or increase) your marketing budget percentage of revenue, you leverage the space your rivals have left unclaimed. Hello, more market share.
• Recessions don’t last forever; steady marketing activities give you increased momentum as competitors struggle to revive their dormant marketing plans.

Your brand offerings also make a difference.

8. Product/service lifecycle

Just as businesses have different stages, so too do products and services. These life cycle stages influence the percentage of revenue your business allocates to its marketing efforts.

Here’s what these life cycle stages typically look like:

• Introduction: Initial days of your product’s lifespan; you’ll invest heavily in marketing to build awareness and stir interest.
• Growth: Demand grows; marketing spending remains high to differentiate products and gain market share.
• Maturity: Most profitable stage, when sales “max out;” Marketing spending stabilizes or drops to maintain market position and fend off competitors.
• Decline: The phase-out period; Sales start to drop, and marketing dollars are cut or redirected to newer offerings. If the product is revamped or upgraded, it reenters the market and starts the cycle all over again.

As shown, your marketing needs shift depending on where your product falls in the cycle. And in turn, so does your marketing budget percentage of revenue.

Let’s imagine a new B2B product. When it first breaks into the market, this B2B company might focus heavily on content marketing or industry events to foster awareness and trust.

During the growth phase, they might redirect their efforts to LinkedIn campaigns and case studies that distinguish their product and increase market share.

Then, in maturity, they might focus on client retention strategies and creeping into new markets. Once in decline? They’ll pivot to promoting next-gen solutions.

But it’s important to note that not every product and service will follow these life cycles. Some might stay in the maturity stage for decades. Other brands (like those in pharmaceuticals) also have to navigate stringent restrictions.

Our advice? Stay on top of industry developments, evaluate your product life cycles often, and always be ready to pivot.

9. Marketing channels used

When determining how much revenue to allocate to marketing, account for the marketing channels you want to use.

There are four main categories to consider:

• Digital advertising: This encompasses all your online marketing efforts. It includes content marketing, social media marketing, email marketing, PPC campaigns, and search engine optimization (SEO).
• Inbound marketing: Draws customers through landing page optimization, video marketing, and B2B marketing. It can also overlap with digital marketing, mainly SEO and content marketing on and off social media platforms.
• Outbound marketing: This involves taking the initiative to start the conversation with your target audience (rather than pull them in with interest, like inbound tactics). Examples include email marketing, and offline efforts like radio and TV ads, affiliate marketing, direct mail, or cold calling.
• Brand awareness and brand advertising campaigns: These introduce your brand and its value to your target market. The goal is to craft customer recognition of your brand. This can include exclusive branding (fonts/designs), interesting logos, a mascot, or a catchy jingle (like the iconic Folgers song).

Some of these options demand a higher investment than others. For example, PPC campaigns will likely cost more than organic social media, depending on the scope of your campaigns across both mediums.

You’ll have to be mindful of this when choosing which marketing channel to invest in.

Here’s what we mean:

Let’s say you love the idea of a fun, memorable tune for your online education program. (Education Connection, anyone?) You’ll have to budget for production costs, composers, musicians, studio time, editing, and marketing your jingle.

Contrast that with, say, designing custom fonts and graphics, and you’re looking at a significant difference in your potential investment.

Why you need a marketing budget

A marketing budget ensures the proper allocation of resources to achieve marketing goals while preventing overspending.

Ultimately, a well-defined marketing budget drives growth, boosts brand visibility, and supports long-term success.

TL;DR: How to calculate a marketing budget

To calculate a marketing budget:

1. Calculate your revenue

Plan to invest between 5% and 20% of your revenue on marketing:

• To sustain: 5%-10%
• To grow: 11%-20%

2. Set measurable marketing goals

Define specific objectives for your marketing campaigns to effectively allocate where your money is spent.

3. Understand how your customers consume content

Research how and where your customers find you. What keywords and platforms do they use? What are their biggest pain points and concerns? Use that information to guide your marketing channels and the type of content you create.

4. Estimate your total marketing costs

After identifying your marketing goals and channels, calculate all your associated expenses.

5. Leverage analytics to monitor performance

Employ analytics tools to track performance metrics and gather data to assess your marketing ROI.

6. Calculate your ROI

After a predetermined amount of time (often quarterly), determine the profitability of your efforts with a basic ROI formula:

ROI = (Sales growth – Marketing cost) / Marketing cost

5. Optimize and deprioritize underperforming channels

Continuously monitor and analyze your marketing performance to identify areas for improvement and optimize future campaigns.

The takeaway

If you want to determine what percentage of revenue should be used on marketing, business owners need a 360-degree analysis of their brand.

Your industry, objectives, competitors, and marketing channels all play a part in knowing precisely how much revenue your marketing efforts need to work.

HawkSEM’s approach? Anything that prioritizes quick, quality conversions:

“We like to start with tried-and-true methods that are the path of least resistance to revenue by focusing on bottom-funnel performers and using our agency data to have confidence in budget allocation decisions,” says Yadegar.

He describes this as the ideal sweet spot where:

“If we spend more, we’ll have diminishing returns, so balancing all that is key to driving sustainable results.”

Let’s be honest, talking about budgets isn’t all that glamorous, but you know what is? Watching your brand flourish and reap killer marketing ROI. That’s the power savvy marketing investments hold over a scattered strategy.

This post has been updated and was originally published in January 2024.