How much should you spend on marketing

Usually set as a percentage of your revenue, to answer this question, you need to know two pieces of information: 1) What are the components of a marketing budget and 2) How much are your peers and competitors spending?   

We’ll explore the following topics so you can plan for success:

1. Why you need a marketing budget

2. Marketing budget as a percentage of revenue

3. Components of an marketing budget

4. Why you need to measure the return on investment for marketing

Why you need a marketing budget

As a business owner myself, I know how easy it is to fall into the trap of spending money on marketing only when there is enough money in the business checking account. But this approach is like following a crash diet—it leads to wild fluctuation in funding, which in turn produces inconsistent results and is not a stable plan for consistent and long-term progress.

You don’t just need a marketing budget; you need to be strong and follow it through all of the ups and downs of your bank account. Marketing (and sales) is the lifeblood of your e-commerce business.

Just like trying to lose weight, you need to:

1. Set a goal = > Determine how much you should spend on marketing

2. Plan out your exercises => Determine where you should spend your hard-earned dollars

3. Get on a scale => Measure the results

So let’s get started with the first step and figure out how much you should be spending on marketing.

Marketing Budget as a Percentage of Revenue

When trying to figure out how much you should spend on marketing, a lot of questions come to mind:

• How DO you figure that number out?
• What are my competitors spending?
• Is there a benchmark or best practices to follow?

Fortunately, there IS a universal metric that companies use to monitor and track their marketing budget: marketing as a percentage of gross revenue. The following charts are from Deloitte’s Annual CMO Survey in 2023 and show some very interesting trends:

Overall, marketing budgets are at an all-time high.

Source: CMO Survey March 2023


But that’s for all companies of all sizes. Let’s drill down to data that’s more relevant for companies ranking  a level 2 e-commerce business.

Marketing Budget based on Internet sales

The first way to look at marketing is from how much sales you do on the internet. This study confirms that the more companies depend on the internet for sales, the more revenue they allocate to marketing.

Source: CMO Survey Report March 2023

Marketing Budget based on number of Employees

Another way to look at this is by how many employees are in your company. Due to scaling, the larger companies can afford to spend less on marketing, but for us small- to medium-sized businesses, marketing is a significant spend.

Source: CMO Survey Report March 2023

Marketing Budget based on Gross Revenue

This study also shows the allocation by revenue or gross sales. Again, the larger companies enjoy the benefits of having a big company, and their marketing spend is less than for those who are smaller.

Source: CMO Survey Report March 2023

Marketing Budget based on Sector

An interesting data point is how the marketing allocation depends highly on if you are a B2B or a B2C ( also known as direct to consumer).

Source: CMO Survey Report March 2023

Marketing Budget based on Industry

Finally, this study shows the allocation by the type of industry you are in.

Components of a marketing budget

Now that you have your annual budget number (or at least your starting point), you need to figure out where to spend it. One of the frameworks we have developed is the Integrated Digital Commerce Department, which is responsible for creating, managing and monitoring the marketing AND sales budget for e-commerce companies.

We classify the following under the marketing section of the profit and loss (P&L) statement:

Non-Discretionary and Fixed Budget:

• Salary of your e-commerce marketing manager OR the cost of your outsourced partner

• Technology investments like Shopify, Hubspot, Klaviyo and related applications

Discretionary Budget

• Coupons

• Labor costs for marketing activities

• Paid campaigns (Google, Bing)

• Paid Social Media (Facebook, Instagram, linkedin)

• Content Writing

• Conversion Optimization

• Trade shows

• Website maintenance

• email campaigns

• Account Based Marketing 

It is important that you set up and track your budget and P&L correctly so you can take the final step and measure the results of your marketing spend.

Why you need to measure the Return on Investment for Marketing

Marketing spend is an expense, not an investment—unless you measure the return you are getting for every dollar that you spend.

One dollar in = how many dollars out?

By tracking the cost as well as associated revenue for each of the categories above, you can figure out which activity is producing the highest rate of return, which ones to double down on and which ones perhaps to allocate funds and resources elsewhere.

This is where most articles on setting your marketing budget end. That’s because actually collecting this data can be difficult and requires 

1. Setting up a profit and loss statement to track actuals vs. budget

2. Figuring out HOW to convert marketing metrics like lift from increased traffic into a hard dollar amount

3. Creating an ROI calculator for each of the marketing buckets to track spend vs. hard dollar returns
   
   

That's a lot of work not just to set it up, but also to stay on top of these numbers and make sure that the money you spend is providing a return.

However, by setting a budget that is in line with your industry, sector, business model, number of employees and gross revenue, you can also make sure that your company is allocating the right amount of funds to be competitive with the marketplace.