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What Percentage of Gross Sales Should We Invest On Marketing?

“How much should we spend on marketing?”

It’s one of the most common questions we get, and there’s no simple answer to it.

Most businesses can be successful with a strong leadership team, the right people in the right roles, and a good product or service. But if you want your company to truly take off – to the point where you can look forward to multiplying its value and book of clients in a matter of years – you need marketing.

Unfortunately, this is where some confusion comes in.

When You Discuss Marketing, Always Be Sure You’re All Talking About the Same Thing

All of the advice in this post is for companies within New York Ave’s “zone of genius,” mid-to-large businesses in a service-driven or niche industry. One of the things we’ve learned about these clients over many years is this: Thousands of dollars in their marketing spend usually isn’t marketing at all.

If your marketing budget seems bloated and you’re not sure what you’re getting for your money, breaking out the spending categories helps you get a clearer view of the big picture. What do we mean when we talk about the idea of marketing? On top of digital marketing – and all the subcategories we offer – it can also include:

  • Event Marketing
  • Promotions and Gifting
  • Industry Partnerships
  • Advertising
  • Public Relations
  • Direct Mail

When you narrow down your definition of marketing to its core – the activities that attract prospects, qualify them into leads, and then turn those leads into customers by building relationships – it’s easier to see what’s happening. A major mistake to avoid is combining marketing and advertising in your budget calculations.

While some marketing agencies will offer online advertising services, it’s important to give your ads a separate category and budget so you’ve got a granular view of spending. Online advertising isn’t suited for all businesses, and use cases are shrinking thanks to changes made by the big advertising platforms.

With that out of the way, let’s take a closer look at the question:

“What percentage of gross sales should we invest on marketing?”

Gross Sales Is the Perfect Marketing Budget Metric … If You Use It Correctly

When it comes to the finances behind marketing, gross sales is the perfect place to start. The challenge is that clients often come to us unsure of how to estimate the results they’ll get from different levels of investment.

Of course, getting any results at all depends on choosing a marketing agency that understands you and your business. It’s all too easy to spend thousands of dollars on a freelance marketer (or one that masquerades as a full-service digital marketing agency) and get nowhere, often after waiting months or years.

Once you’ve found the right digital marketing agency for you, though, you can rely on consistency.

In our experience, clients get reliable results when their marketing budget is tied to gross sales:

  • 2.5%: Maintenance mode
  • 3%-5%: Growth mode
  • 5%-7%: Expansion mode

A general percentage is only the beginning. That percentage can get you a lot further (or not) depending on how you actually use it. Let’s check out an example. Say you have a $5,000,000 business. With growth-oriented marketing at 3%, you would be investing about $250,000 per year.

To get the results you want, your spending needs to be broken down into approaches that make sense for your business. Most businesses will benefit from content marketing, video, social media management, and email marketing – to soar, every one of those techniques needs to be aligned with your audience’s needs.

On top of those familiar tactics, there are many others that could be best for you.

When you discuss your needs with an experienced marketing agency, they should start by learning about your business and goals. Based on your industry, size, objectives, and what your current customers love most about you, an agency can build an efficient and effective marketing strategy where spending makes sense.

For most businesses, digital marketing will bring in the majority of all new customers. Digital marketing should land somewhere between 25% and 35% of the total marketing budget on the conservative end. For the $5,000,000 firm, that works out to $87,500. You can estimate from there with your current financial figures.

Even a detailed estimate is only a starting point. Your budget could turn out to be less or more – and that calls for a thoughtful discussion of what you want to achieve. Contact us today to find out more or get started.

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1 Average median salary in Florida for ‘Marketing Director’, based on research by Glassdoor. 2 Retirement calculated at 3% contribution, based on research by nirsonline.org. 3 Health premium average calculated by ranges provided from a 2016 Health Benefits survey. 4 Total employee average calculated at first year and includes the following considerations: $4k onboarding and training, $1k software and subscriptions, and $3.75k outsourcing help. Total agency average based on Florida-located, full-service agency.