Excel

How to Set Your Marketing Budget 

“How much should we be spending on marketing?”

It’s one of the most critical questions for any business leader, and the answer is almost always: “It depends.”

You’ve likely heard the classic rule of thumb: spend between 5-12% of your expected annual revenue on marketing. But blindly following this range is a recipe for wasted spend or missed opportunities. That percentage is a starting point, but the right number for your business is a strategic decision influenced by a complex mix of factors.

Let’s break down the key variables that determine whether you should be at the 5% end of the spectrum, the 12% end, or even beyond.

The Foundation: The Rule-of-Thumb Ranges

First, let’s acknowledge the benchmarks. According to studies from the CMO Survey and others, the average marketing budget as a percentage of revenue tends to hover around:

  • B2B Product Companies: ~8-9%
  • B2B Service Companies: ~10-11%
  • B2C Product Companies: ~15-18% (often higher due to intense competition and channel costs)
  • B2C Service Companies: ~10-12%

These are averages. To find your number, you need to dig deeper.

1. The Stage of Your Business (The Growth Imperative)

This is arguably the most significant factor. A startup and an established giant have completely different goals and, therefore, different budget needs.

  • Startup & Launch Phase (0-2 years): You are building awareness from scratch. The goal is aggressive growth and market penetration. Budgets are often not tied to revenue (as there may be little to none) but are instead based on funding rounds and aggressive growth targets. It’s common for startups to spend 20-30%+ of expected revenue or even more on marketing to capture market share.
  • Growth Phase (3-5 years): You have product-market fit and are now scaling rapidly. The focus is on customer acquisition and expanding reach. Budgets are still high, typically in the 10-20% of revenue range, as you invest heavily to outpace competitors.
  • Mature & Established Phase (5+ years): The goal shifts from pure acquisition to retention, market leadership, and defending your position. Budgets often stabilize around the 6-12% of revenue mark, with a greater focus on efficiency and brand maintenance.
  • Decline or Reinvention Phase: In a declining market or during a pivot, marketing spend might be tightened (e.g., 4-6%) to preserve cash, or it could be strategically increased to fund a rebrand and enter new markets.

2. B2B vs. B2C: The Sales Cycle & Channel Cost Divide

Your target customer dramatically impacts your budget allocation and percentage.

  • B2B (Business-to-Business):
    • Characteristics: Longer sales cycles, higher-value contracts, relationship-driven.
    • Budget Impact: Often a lower percentage (8-11%) because the cost is spread over a longer period and balanced with sales team costs. Investment is heavy in Content Marketing, SEO, LinkedIn Ads, and Account-Based Marketing (ABM)—channels that nurture leads over time.
  • B2C (Business-to-Consumer):
    • Characteristics: Shorter sales cycles, lower individual transaction values, impulse-driven, brand-focused.
    • Budget Impact: Typically a higher percentage (12-20%) due to the high cost of broad-reach channels like TV, social media advertising (Meta, TikTok), and influencer partnerships. Competition for consumer attention is fierce and expensive.

3. Your Industry & Competitive Landscape

Is your industry a calm river or a shark tank? Benchmark against your peers.

  • High-Competition & High-Margin Industries: Industries like Consumer Packaged Goods (CPG), Technology, and Retail often have higher percentages (12-20%). They can afford to spend more because the lifetime value of a customer is high, and they must shout to be heard.
  • Niche, Low-Competition, or Low-Margin Industries: Sectors like Manufacturing, some B2B services, or utilities may operate effectively with lower percentages (5-8%). Their marketing is often more targeted and relationship-based.

Actionable Tip: Research industry-specific reports from Gartner, Forrester, or the CMO Survey to see where your sector stands.

4. Employee Talent: The In-House vs. Outsource Equation

How you structure your team directly affects where your budget dollars go. Your “marketing budget” must cover both people and ad spend.

  • In-House Team: You have fixed salaries, benefits, and software costs. This provides great control and brand alignment but requires a significant, consistent investment. With an in-house team, a larger portion of your budget percentage is allocated to people, potentially leaving less for the actual ad spend and campaigns.
  • Fully Outsourced/Agency Model: You pay retainers or project fees. This offers flexibility and access to a wide range of expertise but can be expensive and less integrated with your daily operations. Your budget percentage here is more directly tied to active marketing activities.
  • Hybrid Model (The Most Common): A small in-house team for strategy and management, supplemented by agencies or freelancers for specialized work (e.g., SEO, PPC, creative). This model allows for flexibility in scaling your budget percentage up or down as needed.

5. Marketing Channels & Goals: The “What” and “Where”

Your chosen marketing channels have vastly different costs and returns.

  • High-Cost Channels: If your strategy relies on expensive paid channels like Google Ads, Connected TV, or high-value influencer partnerships, your overall budget percentage will need to be higher to generate meaningful results.
  • Organic & Owned Channels: A strategy focused on SEO, content marketing, and email nurturing has a lower ongoing cost (mostly people/time). This can allow you to operate effectively with a lower overall budget percentage once these channels are established, though they require a significant upfront time investment.

Your goals matter, too. A goal to “increase brand awareness” by 50% requires a different budget than a goal to “increase lead quality by 10%.”

A Practical Framework for Setting Your Budget

Stop guessing. Follow this process:

  1. Start with Your Revenue Goal: Let’s say your goal is $2 million in annual revenue.
  2. Apply a Tentative Percentage: Based on your stage, industry, and model, you choose a working percentage of 12%. That gives you a total marketing budget of $240,000.
  3. Work Backwards with a Bottom-Up Plan: This is the crucial step. How will you actually spend that $240,000?
    • Salaries for 1.5 in-house staff: $120,000
    • Software & Tools (CRM, email, analytics): $20,000
    • Agency Retainer (SEO/PPC): $60,000
    • Remaining Ad Spend (Social, Google): $40,000
    • Total: $240,000 ✔️
  4. Analyze and Adjust: Does this plan realistically support your $2 million revenue goal? If not, you must either adjust the budget percentage or adjust the revenue goal. It’s an iterative process.

The Bottom Line

There is no universal “perfect” percentage. Your marketing budget is a strategic lever, not a line item.

Stop asking, “What percentage should we spend?” and start asking, “What growth do we want to achieve, and what investment in marketing is required to get us there?”

By considering your business stage, customer type, industry, team structure, and channels, you can move beyond the averages and build a budget that is not just a cost, but a direct investment in your company’s future.