How Much Should You Spend on Marketing Your Business?

Michael Costin

October 8, 2020

I’ll never forget the phone call that inspired this article.

There I was just minding my business when out of nowhere the team sent me a Slack message: “Hot lead. Looking to dominate his industry. Wants to talk ASAP”.

YES! 

Who said SEO was dead? We’d just got another big lead by ranking for some competitive Sydney SEO terms.

Anyways…

We jumped on a call immediately. 

It went about as terribly as you could possibly imagine.

Me: “Hey, mate, so I hear you’re looking to compete for some serious terms?”

Client: “You heard right, Mike. Looks like you guys are the right ones to talk to.”

Me: “Awesome, man. So what exactly do you want to achieve? Any idea?”

Client: “I want to dominate (*Term deleted*) in the entire Sydney Area. I want to outrank all competitors within 10-12 months”.

Me: “Ambitious. I like it. Tough but doable if we grind hard. What’s your budget?”

Client: “We’re thinking between $500 – $750 a month. How long before we get to #1?

Here’s a dramatic recreation of my response:

Image Credit: Giphy

$500 a month?

I told him the best we could do for that was a couple of blog posts.

Growing a business is not easy. It requires realistic investment.

Furthermore, digital marketing is not easy either. In any competitive industry, $500 per month will get you nothing. 

$1,000 per month will get you double the nothing of $500. That’s still nothing. 

I’ve been in this business for years, and I can tell you this:

Being tight with your marketing budget is one of the BIGGEST MISTAKES a business can make.

Image Credit: Giphy

Growing a business & being “thrifty” with the advertising budget rarely go hand in hand.

If you aren’t willing to invest seriously in growing your company, just quit now. 

Because guess what? All of your competitors are. 

It doesn’t matter how much better your product or service is. 

If your competition is spending 10-12% of yearly revenue on their marketing and you’re spending 0-5%, you stand no chance.

Here’s what will happen:

  • Everyone searching for your key terms will see your competitors first
  • Interested Facebook users will see their name on their feed instead of yours
  • They’ll be in every inbox for every warm lead while you’re still relying on word of mouth
  • Google will display your competitors ads over yours, meaning they get thousands of buy-ready visitors 100% hands-off while you hustle for leads
  • Local customers will see their name on the map with a “ CALL NOW” button while your name collects dust in the phone book

 

So How Much Should You Spend on Marketing Your Business?

Honestly, it all depends really. It’s your business after all.

The best answer is your advertising budget should really be fluid and unlimited. If your ads are generating new business at a profitable rate then you want to be spending as many dollars as possible on them, and scaling or adjusting spend to the channels working best at any given time.

Of course, that’s not always possible. Whether it’s due to resources, lack of time, production process etc it’s not always possible to go hell for leather spending as much as possible on the ads.

As such, most companies will need that annual marketing budget.

Every business will be a smidge different based on a ton of factors, including:

What’s your monthly revenue?

What are your goals?

What are your competitors doing?

Which industry are you in? 

Some big retailers spend 20% of their annual revenue on marketing. Some companies DOMINATE with only 5-7%. 

It’s rare, but it happens.

Here are some ballpark figures:

The American Small Business Association recommends between 7-8% of your total revenue for marketing.

And according to a survey featured in the Wall Street Journal, the average company’s marketing budget is about 11% of its total budget. And the average company spends roughly 7.5% of their total revenue on marketing (Source: The CMO Survey and Deloitte Digital).

Again, this varies widely by industry. It also depends heavily on which phase you’re in as a company.

A large, entrenched brand might only need a small portion of its total budget because it has massive brand awareness. McDonalds rakes in upwards of 20 BILLION per year, but spent only $447 million (ONLY!) on advertising in 2019 (Source: Statista). That’s about 2%.

Compare that to Uber, who spent 3.2 billion on advertising against 11 billion or so in revenue (Source: BusinessInsider). That’s an astounding 29%! That’s what it takes when your goal is to go from bootstrap startup to the alpha dog in your market, though. 

You’ve got to spend some to make some, or so they say, and based on my decade in the advertising game “they” are right.

Since digital marketing is what we do best, let me lay it out for you based on my years in the business.

How Much Should I Spend on Digital Marketing?

Digital marketing is a monthly investment in growing your business. So all of my numbers will be as if you’re paying a monthly fee.

For example, if you make $1 million in revenue a year, you should be spending about 7% of that ($70,000) per year MINIMUM. Per month, that comes out to roughly $5,500 give or take

If you’re a smaller business doing $200,000 per year, then in order to grow into a bigger business you should be spending a higher percentage – 10% – about $20,000 per year MINIMUM, or about $1,700 a month.

Here are some back-of-the-napkin ranges based on working with hundreds of clients:

  • 6-8%: This is the bare minimum, and what I like to call “maintenance” level. This will maintain your current levels of business/revenue or maybe bump them up a tiny bit.
  • 8-10%: This is enough to start seriously competing and going after lucrative terms. 10% is USUALLY enough for a stunning website, a nice ad spend, and a strong SEO campaign.

10-15%: Operation: Domination. Now you’re gunning for the big boys, and have the budget to go after the most lucrative key terms. Provided your business is doing enough revenue, you could easily dominate the organic results, social media, and Google ads plus have a high-converting website.

Keep in mind this depends heavily on competitor spending. If you’ve got a competitor going Uber on everyone, it’ll be tough to compete with only 10% of your monthly spend.

Did You Know?

We can estimate a competitor’s ad spend & SEO investment using a range of fancy (and expensive) tools, so you can get a good idea of your probability of success BEFORE investing money! Find out what’s possible for your business by clicking that free proposal button in the header now.

What Will My Monthly Advertising Budget Get Me?

Alright, the moment we’ve all been waiting for.

Here’s what you can expect, broken down by your total monthly budget and its potential for GOOD digital marketing.

$1,500 or Less per month

You’re better off doing everything yourself. It’s not worth the agency fees. 

In fact, any honest and quality agency will politely decline to work for that spend, leaving just the low quality, churn and burn operations throwing their hat in the ring. 

These “churn and burn” agencies cut every corner and just spam your site with unnatural links or automated tactics, making it appear as if you’re getting results. But here’s the thing – Google isn’t stupid. They know that no new website would ever be getting 100s of links in a month, especially from unrelated industries.

So, Google will slap a penalty on your site that banishes you to the bottom of the results. Getting back to the top could take YEARS.

Why is spending $1,500 or less per month a bad idea?

It’s never smart to buy into a poker game for the bare minimum. All your competitors will have more money to play with. They’ll just bully you around.

For Google/Social media ads, a budget of $1,500 is not much to cover the cost of agency fees plus advertising costs. Even if the agency charges $500 a month for their service (which is a cut price), it only leaves about $30 bucks a day for the ads. For most businesses, this doesn’t cut the mustard.

And on the SEO front, any legit SEO company won’t be able to get you sustainable results with this budget. 

Good digital marketing is never cheap and cheap digital marketing is never good.

If you can’t afford more than $1,500, my recommendation is that you spend some time learning the basics and grow the campaign yourself. When you have a bigger budget, engage an agency to take the management off your plate.

$1,500 - $5,000 per month

This is the entry-level range. 

Now it’s worth your time and ours (or any quality agency service) to do business.

With this sort of investment, you can afford a good website, fast hosting, basic email marketing, some social media, and quality, sustainable SEO. 

At this point, it’s better for you to remove yourself from the time consuming day-to-day grind of managing campaigns, and start focusing only on the leads or other activities that move your business forward.

Obviously, the closer you are to $5,000 the more you can start pushing your rankings up and expanding your reach. We’ve ranked clients #1 for very competitive terms for less than $5,000 a month.

$5,000 - $10,000 per month

In this range you can expect everything from the last range, PLUS scaling up either your Google Ads or Facebook Ads. If you start pushing to $10,000, then you can think about a really comprehensive multi-channel campaign. 

For about $10,000/mo, you can expect a very strong foundation for years to come. 

A website, social media advertising, organic rankings in Google, and high performing Google paid ads will make a rock solid foundation and consistent source of new business.

At this spend, you will have a steady inbound flow of leads, a sales pipeline with decent prospects for your team to close, without having to hunt them down via outbound efforts, or worse, relying on yo-yoing word of mouth referrals.

$10,000 - $15,000 per month

This is the kind of campaign where your potential customers seem to “see you everywhere”.

Now we can start getting super aggressive and going after heavy hitting key terms. Here’s where you can start thinking about multi-channel campaigns and extra strong national SEO.

You can dial in marketing automation, conversion funnels, high quality creative ads for paid media, YouTube ads, and even retargeting (if a customer “abandons” your site, we can hit them with a better offer to come back) – the list goes on.

$15,000 + per month

Once we’re in this ballpark, agency fees for managing the paid media campaigns should be pretty static. The difference in spend here typically comes down to two main areas:

  • Media investment: This is the money going straight to Google & Facebook for all those clicks on your ads. You could spend 20k, 30k, 50k a month or more on these platforms, and do it confidently because you know it’s paying for itself many times over thanks to the dialled in campaigns, landing pages, conversion funnels etc.

SEO: Link building budgets and content creation budgets can be scaled to whatever is necessary to really dominate your space. In some industries, you may have hit the ceiling on the budget required long ago, but for super competitive industries like finance or law, this is where you can poke your head up against the competition with an aggressive link building and content creation campaign.

What to do Next? Come up with a Digital Marketing Budget

We’ve worked with hundreds of companies in the past in budgets ranging from $1,500 a month to $50,000 +. Here’s how we help them come up with a ballpark digital marketing budget:

First, calculate 10% of yearly revenue as a monthly figure

We think 10% of yearly revenue is the lowest possible number to spend if you want to grow your business. Anything less is still “maintenance level” in MOST INDUSTRIES.

So, if you’re making $1,000,000 a year (great job!), your monthly figure is $8,300 (10% of 1,000,000 divided by 12 months).

This isn’t gospel – it’s just a starting point.

Next, determine your goals based on your company’s position

Are you a new business trying to make a name and destroy the competition?

How about an established business trying to expand its reach and experiment with new forms of advertising?

In our experience, new businesses need at least 12-15% of yearly revenue for marketing. Since your web presence isn’t established or mature, you’ll need more links, more ads, and a lot more hustle to make a name for yourself.

Established business won’t need to push as hard in most cases. We still recommend at least 10%, but some very established clients of ours have spent as little as 7 or 8%.

Next, check the competition 

We highly recommend analysing the competition. If you have competitors running aggressive campaigns, you’ll have to invest more to compete (obviously).

Here are a few basic ways to check your competition:

  • Google your desired key terms: See who’s ranking for them. Check if they’re running paid ads or appear on Google Maps. If they’re big, established brands with stunning websites, you need to adjust the 10% figure. If they have low quality content, a poor domain, and an old website, contact us NOW: We can help you with a market leading campaign right away
  • Now go on social media: Do you see ads for them on your feed? Are they running YouTube ads? If they don’t have a social presence, chances are they aren’t spending much.

Use ahrefs (free trial): ahrefs is an incredible analysis tool that shows who’s ranking for what, how powerful their authority is, how many keywords they rank for, and a ton more. This will show you how much you need to spend to overtake them. If you’d rather we do that for you, get in touch now and we’ll handle everything.

Closing Thoughts

To answer the question “how much should I spend on marketing my small business?”, the answer is “it depends”. In general, we recommend about 10% of yearly revenue minimum.

If 10% of that figure comes out to less than $1,500 per month, then it’s better for you to go it alone – don’t blow your money on an agency service. Instead, build your revenue up yourself. Then, when things are going well and it makes sense to take things off your plate, speak to an agency like Local Digital to remove the time consuming digital marketing work from your to do list so you can focus on the bigger ticket items for your business 

Hope this has helped!

About Michael Costin

Michael is the co-founder at Local Digital. He has a decade of experience in the digital marketing space, and is a big enough nerd that he's well practised in all the common digital marketing channels, from SEO to copywriting, paid social to analytics and tracking.

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