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How Much Should a Business Spend on Marketing?

By Jonathan Shepley in Marketing

The adage goes, “You have to spend money to make money.” That statement holds, especially when it comes to marketing your business. But how much should a business allocate to its marketing budget? There are several factors involved including your brand, communications, advertising, and more. Read on for tips worth considering.

Establish Your Brand

Developing a brand that includes a company logo, a style guide, and creative direction typically should happen when a business first launches. The return on investment for establishing your brand isn’t necessarily tangible, although it is an investment that will help your marketing strategy be more effective in the long run.

Inexpensive logo-design platforms that incorporate artificial intelligence are available, but sometimes you get what you pay for.

Generally speaking, a well-thought-out brand from an expert advertising agency will start anywhere from $1000 to $5000 depending on the complexity of the deliverables.

Investing in Advertising

The suggested advertising spend varies depending on whether your business is a startup, has been around for a few years, or has been in business for decades. A general rule of thumb if a company wants to keep a steady pace is to spend roughly 5% to 10% of total sales. Spend closer to 20% if you want to accelerate your business faster.

Even startups that might not have many sales to support a big investment in advertising should still budget about $1000 a month to steadily grow brand recognition and product awareness. Having an advertising plan that your company sticks to could help to level out highs and lows which will help manage your business in regards to staffing, supplies, and projections. 

Customer Acquisition Cost (CAC)

Another concept relates to how much money a business spends on acquiring new customers, known as customer acquisition cost (CAC). Think of CAC as the sum of all parts, including the cost of your brand, your advertising, and your sales, design, and marketing team salaries. The total of these expenses divided by the number of customers you gained during that same timeframe is your CAC. Always keep a close eye on the effectiveness of your marketing and make adjustments when needed.

Even when business is booming, marketing should be a part of your business plan to sustain a steady flow of new business.

Customer Lifetime Value (LTV)

It’s important to be able to understand what a new client is worth to you before you can determine how much to spend on your marketing efforts. This Customer Lifetime Value (LTV) refers to the expected revenue stream from one customer throughout their business with you. If a new customer buys a $1000 product and replaces it once a year for five years, the LTV is $5000.

It is easier to justify spending money on marketing when you know that what you are spending is only a small fraction of what your investment will return. You can allocate an appropriate marketing budget to acquire and retain customers profitably.

Communications

Regardless of what you spend on your advertising and marketing efforts, it will all be for naught if new leads aren’t managed properly. Proper communication can make or break your marketing efforts. For example, if most potential new customers contact your business by telephone first, the person answering the phone must be knowledgeable and helpful. After all, a first impression makes a big impact on how your company is perceived. Or, if there has been a glitch in your production timeline, for example, be proactive and reach out to your customers to let them know about the delay.

A little customer service goes a long way in customer satisfaction and loyalty. Lastly, respond to questions and reviews on social media or Google. Even if someone doesn’t have something nice to say about your product or service, replying publicly or asking them to contact you for a private conversation elevates your credibility and image. 

In conclusion, planning how and when to spend money to make money should be a priority. We understand that it can feel overwhelming since there are so many aspects to consider. Tagline Media’s expertise can help guide you. Contact us today to get the conversation started. Call (520) 207-8910 today!