How Much Should Your Business Spend on Advertising?

Great advertising and marketing are crucial to the success of a business. In recent years, digital advertising has seen significant growth, making it more important than ever for companies to have a strong online strategy in place. So how much should your company spend on advertising and where should that money be invested?

What should be your budget?

The average marketing and advertising budget for a business is 10% of its gross revenue. However, advertising spend isn’t a one-size-fits-all equation. Determining the best advertising budget for your business depends on your industry, company size, company history, existing digital presence, and goals.

1. New Businesses

For first-year businesses, it takes more marketing capital to get off the ground. New businesses need to invest heavily in brand awareness to gain customer trust and a market voice. 

Percentage: 12-20%

Variables: Some industries are more competitive than others. It is crucial to conduct in-depth market research to understand your audience and competition. The level of competition will help you determine how much to spend in ad dollars.

2. Established Businesses

Percentage: 6-12%

Variables: Competiton and profit margin are two important factors for determining your advertising budget. The higher your profit margin, the more you can afford to spend on marketing and advertising. 

If you are a smaller company doing less than $5 million in sales, the U.S. Small Business Administration recommends spending around 7-8% of your gross revenue on marketing. 

Where should you invest your ad dollars?

To properly allocate your ad dollars and maximize your ROI, businesses must pay close attention to industry trends, competitors, and consumer behavior.

In 2019, over $100 billion was spent on search marketing, display advertising, social media, and email marketing. For the first time ever, digital marketing spend surpassed traditional advertising spend (TV, print, radio, etc.). While traditional advertising is still a relevant means of marketing, digital advertising is projected to continue to dominate in the coming years.

How should you spend in a recession?

As the COVID-19 pandemic continues to cause economic uncertainty in the United States, businesses need to remain calm and reframe from slashing their advertising budget.

During a recession, there is less competition and noise. While other businesses are quiet, your customers are more likely to hear your brand voice above the rest. In addition to this, less competition means cheaper ad costs. When the economy improves, your business can emerge as a market leader having acquired a substantial customer base at a lower cost.

“A man who stops advertising to save money is like a man who stops a clock to save time” -Henry Ford

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