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

By Chris Kolmar - Oct. 11, 2021

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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.

7-8% of gross revenue should be used on marketing and advertising for most small businesses

  • 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%

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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.

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FAQ

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, depending 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.

How can you develop a marketing budget for your business?

To develop a marketing budget for your business, you need to research your industry (including competitors), set measurable, specific goals, and consider all potential costs, including online advertising and social media.

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

As digital overtakes traditional advertising methods, the top channels you should use when marketing your products or services include search engine marketing, online display, video, and email.

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.

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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.

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