What Percentage Of Gross Revenue Should Be Used For Marketing & Advertising?

Research Summary. Most companies use between 1% and 40% of their gross revenue for marketing and advertising services. However, the number can vary significantly depending on multiple factors, including your product or service, market and competition, profit margin, and years in business.

After extensive research, our data analysis team concluded:

• A general rule of thumb is to spend between 7% and 8% of gross revenue on marketing and advertising, although this can increase to as high as 40% in some instances.

• Marketing budgets as a percent of firm revenue peaked in June 2020.

• While last year saw a 3.9% reduction in marketing spending, primarily due to the COVID-19 pandemic, this year—and for the foreseeable future—it’s expected to increase.

• Spending on digital advertising (e.g., banner ads, online video, social media, and email) now outpaces traditional marketing methods (e.g., TV and print ads), which is a trend that’s forecast to continue.

• To develop a marketing budget, you need to research your industry, set clear goals, and consider and track costs.

• Your marketing budget refers to all costs for marketing, advertising, public relations, and promotions.

  Examples include Google AdWords, social media, print ads, sponsorships, events, collateral, and tastings.

For further analysis, we broke down the data in the following ways:

• Depending on several crucial factors, you should spend between 1% and 40% percent of your gross revenue on marketing and advertising.

  If your business brings in less than $5 million in annual sales and has a profit margin between 10% and 12%, the U.S. Small Business Administration recommends spending 7% to 8% of your gross revenue for marketing and advertising purposes.

  As a percentage of overall revenue, at least one large-scale study of more than 160 Chief Marketing Officers found that companies spend a mean of 8% and a median of 5%. Comparatively, they spend a median of 10% of the overall budget on marketing and advertising and a mean average of 12%.

  One reason it’s challenging to provide a general budget recommendation is that each company might consider different facets as part of their marketing budget. For example, Company A could include any marketing and even sales expenses, whereas Company B could categorize these expenses separately.

  With these details in mind, depending on the marketing expert you ask or the poll you reference, recommended spending could range between 1% and 40% of gross revenue based on factors like:

  • Your product or service (including if it’s new or already established in the marketplace, in addition to its price point);

  • Other companies in your niche;

  • Your target market and its competitiveness;

  • Your goals and success measures;

  • How much you can afford;

  • Your location;

  • How long you’ve operated;

  • The stage your business is in (e.g., newly founded vs. headed toward closure over the short- to medium-term).

  

• Survey results reveal that 58% of chief marketing officers spent less than 4% of gross revenue on marketing.

  16% spent between 5% and 6%, 23% spent more than 6%, and 2% spent more than 20%. Overall, 74% of respondents spent between 0% and 6%.

• As a percent of firm revenue, marketing budgets have trended upward since 2011, with a peak of 12.6% in June 2020.

  Here’s how the numbers chart over the years:

  Marketing Budgets as a % of Firm Revenue
  Month/Year	Percentage
  February 2011	8.10%
  February 2012	10.4%
  February 2013	10.6%
  February 2014	10.9%
  February 2015	10.1%
  February 2016	12.1%
  February 2017	11.1%
  February 2018	11.1%
  February 2020	11.3%
  June 2020	12.6%
  February 2021	11.7%

• Overall, B2C companies that sell products spend more on marketing than B2C and B2B companies that offer products or services.

  The numbers are as follows:

  How Much Should Your Firm Budget For Marketing?
  Economic Sector	Marketing Budget as Percent of Firm Budget	Marketing Spending as Percent of Company Revenue
  B2B Product	10.4%	9.0%
  B2B Service	9.9%	7.9%
  B2C Product	20.0%	11.9%
  B2C Service	8.2%	4.8%

• The larger the company, the more money they allocate to marketing and advertising.

  Small businesses spend an average of about $30,000 per year on marketing and advertising, which increases to $60,000 for companies with 20-49 employees and over $100,000 for those that have payrolls of 50 or more.

  

• Businesses in the consumer services (18.9%) and education (12%) spend more on marketing as a percent of company revenue than others.

  Here’s a list of how these industries compare:

  • Tech: 9.7%

  • Banking/finance/insurance: 9.2%

  • Communications/media: 9.0%

  • Consumer packaged goods: 9.1%

  • Energy: 8.3%

  • Healthcare: 9.0%

  • Manufacturing: 2.4%

  • Mining/construction: 3.0%

  • Service consulting: 7.5%

  • Retail/wholesale: 4.4%

  • Transportation: 8.5%

  When it comes to future spending, Pharma/Biotech expects the largest traditional growth (10.0%), while Mining/Construction expects the largest loss (-8.2%).

  

• To develop a marketing budget for your business, you’ll need to research, set goals, and track costs.

  Here are several tips to help you develop a marketing budget that fits your needs:

  • Research your industry — What’s common for your industry? What are your competitors spending? How do you compare, size-wise?

  • Set clear goals — Setting measurable, specific goals can help you plan what needs to be done based on who you want to reach and their needs. Examples include increasing website traffic, boosting targeted site leads, and growing new business.

  • Consider all potential costs — Marketing involves many different facets, each of which costs money. Examples include websites, social media, online advertising, e-newsletters, and videos.

  • Keep track of costs — Regularly keep an eye on your budget and track your progress, so you can know which marketing facets deliver the best results and where you might need to pivot.

• The COVID-19 pandemic affected how much money companies allocate for marketing and advertising purposes.

  For example, the percentage of overall marketing budget lost or gained due to COVID-19 in March-April 2020 by industry was:

  Industry	Percent Lost/Gained
  Banking	-7.9%
  Communications/Media	14.7%
  Education	6.7%
  Energy	-10.0%
  Healthcare/Pharma	3.0%
  Manufacturing	4.1%
  Mining/Construction	-18.3%
  Services Consulting	15.9%
  Technology	8.0%
  Transportation	-1.7%

  Year-over-year, we can also see how the pandemic impacted overall marketing budgets by percent of company revenue:

  • 2014: 10.2%

  • 2015: 11.4%

  • 2016: 12.1%

  • 2017: 11.3%

  • 2018: 11.2%

  • 2019: 10.5%

  • 2020: 11.0%

  • 2021: 6.4%

  

• Just like marketing spending, return on investment (ROI) can vary depending on the marketing channel.

  Marketing Channel ROI
  Type	Very Poor	Poor	Average	Good	Excellent
  Social media marketing	7%	12%	30%	33%	17%
  Search engine optimization (SEO)	8%	12%	35%	31%	14%
  Email marketing	6%	11%	30%	35%	18%
  Display advertising	13%	20%	38%	20%	8%
  Direct mail	15%	18%	34%	23%	10%
  Content marketing	8%	12%	38%	32%	11%
  Affiliate marketing	12%	17%	39%	24%	9%
  Social PPC	8%	15%	35%	30%	12%
  Search engine/PPC advertising	10%	17%	38%	25%	9%

• Despite a 3.9% reduction in overall marketing spending in the last year, marketers report an 11.5% increase this year—a trend that’s expected to continue.

  Digital budgets are expected to undergo a significant shift and grow by 10.1% in the next year, whereas traditional advertising is expected to show negative growth (-0.2%). And instead of focusing on improving marketing ROI, most marketers report they’ll remain focused on retaining current customers and building brand value.

• Most CMOs invest in website optimization (73.8%) and digital media and search (65.0%) to improve the performance of their digital marketing activities.

  Other top choices include:

  • Direct digital marketing: 57.3%

  • Data analytics: 56.5%

  • Marketing technology systems/platforms: 53.8%

  • Online experimentation and/or A/B testing: 45.4%

  • Managing privacy issues: 28.5%

  • Machine learning and automation: 20.4%

  

• In 2021, the average company planned to allocate 62.3% of its total media ad budget to digital.

  Experts expect this rate to increase to 66.8% by 2023.

  Search engine marketing will capture the lion’s share of the digital budget, followed by online display (e.g., banner ads, online video, and so forth). Online video is another high-growth category, as are investments in social media advertising and email marketing.

  Together, these channels are predicted to account for 46% of all advertising by 2021.

  

• Digital advertising is on the rise, while traditional advertising is steadily declining.

  While traditional advertising investments have declined every year for the past few years, digital marketing spend has experienced double-digit increases.

  Digital Ad Spending in the U.S., 2018-2023
  Year	Digital Ad Spending (billions)	% of Total Media Ad Spending
  2018	$108.64	48.6%
  2019	$129.34	54.2%
  2020	$151.29	58.5%
  2021	$172.29	62.3%
  2022	$187.77	64.8%
  2023	$201.83	66.8%

• 97% of marketers invested in paid social advertising, up 10% from the year before.

  91% of marketers currently invest in Facebook, although 26% plan to spend less on the platform over the coming year. 46% expect to increase their investment in Instagram, and 51% expect to spend more on YouTube.

  Here’s a more detailed breakdown:

  In Which Social Platforms Are Marketers Currently Investing?
  Platform	Participation
  Facebook	91%
  Instagram	69%
  YouTube	48%
  LinkedIn	45%
  Twitter	36%
  Quora	31%
  Reddit	14%
  Pinterest	13%
  Snapchat	8%

Gross Revenue for Marketing FAQ

1. What percentage of gross revenue should companies use for marketing and advertising?

   You should spend between 1% and 40% percent of gross revenue on marketing and advertising. Whether you spend more or less depends on your product or service, your competition, your target market, your location, how long you’ve been in business (including your business’s phase), and how much you can afford.

2. How can you develop a marketing budget for your business?

   Research and goals are crucial for developing a marketing budget for your business. More specifically, you need to research your industry (including competitors), set measurable, specific goals and consider all potential costs, including online advertising and social media.

3. What are some of the top digital channels to use when marketing your products or services?

   The top channels you should use when marketing your products or services include search engine marketing, online display, video, and email. This is because digital advertising continues to take over traditional methods, making it a more effective strategy for attracting customers.

4. What percentage of revenue comes from advertising?

   60-80% of all revenue is derived from advertising in the US. This is impressive, given that companies spend an average of 7-8% of their revenue on those ads. In fact, for every dollar spent on ads, companies earn an ROI of $2.

   Overall, ads are vital for exposing new, potential customers to products/services, as well as educating them on why that product/service is superior.

5. How much money do social media companies make from advertising?

   Globally, social media companies made $153 billion in 2021. Further, that number is expected to grow to $252 billion by 2026.

   Social media companies make a ton of money from ads because it’s the way they make their free-to-use services profitable. For instance, even though you can watch YouTube videos for free, the company still makes money from the ads you watch before, during, and after the video.

   After all, other companies want you to see their products, so they’re more than willing to pay YouTube to display those ads.

Conclusion

While some businesses use as much as 40% of their gross revenue for marketing and advertising purposes, most fall within the 5% to 8% range, depending on the industry, competition, target market, goals, and affordability.

Whatever your budget, though, digital advertising is the future. Just keep in mind that your return on investment can vary significantly between channels, so you’ll need to do your research before spending hard-earned money.

Sources

1. Ven:Dux. The Start-up Dilemma – How Much to Spend on Sales Marketing. Accessed on 9/20/21.

2. Chron.com. What Percentage of Gross Revenue Should Be Used for Marketing Advertising? Accessed on 9/20/21.

3. Business Development Bank of Canada (BDC). What is the average marketing budget for a small business? Accessed on 9/20/21.

4. Nuphoric. How Much Should You Be Spending on Marketing? Accessed on 9/20/21.

5. 121mcv Sales and Marketing. What Percentage of Gross Revenue Should Be Used for Marketing Advertising? Accessed on 9/20/21.

6. Gartner. Insights From Gartner’s CMO Spend Survey, 2021. Accessed on 9/20/21.

7. Deloitte. The CMO Survey: The transformation of marketing. Accessed on 9/20/21.

8. Entrepreneur. Calculating Your Ad Budget. Accessed on 9/20/21.

9. WebStrategies, Inc. How Much Should You Budget For Marketing In 2021? Accessed on 9/20/21.

10. That Agency. 2020 B2B Marketing Spend by Industry. Accessed on 9/21/21.

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.