Blog: The Spin
#LaundryMarketingNews
December 01, 2022
How Much Should an Aggressively-Growing Business Spend on Marketing (and Where?)
According to the U.S. Small Business Administration, companies with less than 5 million in revenue (and 10-12% profit margins) should invest 7-8% of their revenue into marketing. Mid-sized businesses are recommended to spend 10%, and enterprise businesses are recommended to spend 15%. The range is more extreme when we look at industry vs. industry statistics, where consumer services industries are spending 19% of their revenue on marketing while retail wholesale industries are spending 4%.
The U.S. Small Business Administration also reports that business-to-consumer companies spend more on marketing than business-to-business companies and that companies that sell a service spend more on marketing than companies that sell a product.
How to Find Your Marketing Balance
Healthy marketing budgets in our industry range between 4% and 12% of revenue depending on how aggressively the business is positioned to scale. It’s important to not be spending too little or too much on marketing. Here’s how to determine your ideal marketing spend:
1. Create a Budget
Marketing is often overlooked in yearly budgetary spending. This is particularly true of businesses that have gotten by on word of mouth or referrals throughout their history. Sometimes this goes on for years, and marketing ends up becoming an extremely small percentage of their budget (even less than 1%)!
In some cases, this undervaluing even becomes a badge of honor for some who brag about not spending anything on marketing. That’s a mistake that ultimately makes those businesses vulnerable for two reasons:
- When business slows down, referrals slow down, which leaves the business at the whim of factors that are uncontrollable and unpredictable.
- Undervaluing marketing leads to an overvaluing of company profitability and health.
For companies that neglect marketing practices, net profit can be a canary in the coalmine. If net profit is where they want it to be or just slightly off, that bird is wheezing. It means they’re not charging enough and their margins are not strong enough to actually allocate 4-12% of revenue towards marketing.
For example, if a company budgets for 1% for marketing and pulls 5% net profit, that means a marketing budget of 4% would make them break even.
Before determining how much a business can spend on marketing, companies have to first ask “Am I charging enough?” and “Is my marketing budget healthy?” A healthy marketing budget is integral to building a robust sales pipeline.
2. Plan for the Future
When creating a marketing budget, it’s important to remember that you are planning for the future. You want to budget for your revenue goals and not for existing revenue. For example, if you are currently bringing in 15 million and you want to be doing 20 million in revenue, then you should plan for X% of 20 million as opposed to 15 million. This is where you can start to plan your growth and create some predictable scalability.
After determining that you have a healthy budget in place, the next thing to determine is where this money should go. There are a lot of different things that are considered part of marketing. They vary from company to company but most lists include:
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As you can see, 1% really doesn’t take you very far. A healthy business in this industry should be pushing its marketing budget into that 4-12% range. If that doesn’t work for your business model, then make sure to look at your margins and if you are charging enough for products and services so that you can comfortably factor in marketing.
3. Adjust Marketing Efforts to Achieve Business Goals
Once you have a budget in place, you can now use the budget to help determine where you can adjust your marketing depending on the current goals of your business. You want to examine them to not only see how much you are spending, but to also evaluate whether you’re getting a return on those line items. If you’re not seeing a return, you will be positioned to shift those dollars to other parts of your marketing strategy that are showing a better return. That’s why it’s really important to not only track your marketing, but to track the dollars of each individual effort so that you can wisely invest in marketing strategies that are productive for your business.
Every plan will be different and this is not a one-size-fits-all approach. You will have to modify & craft yours specifically for your company as well as its specific activities.
Company growth in the modern world, for every industry, requires marketing. It’s my goal in this article and in life to provide the framework that linen and uniform providers can use to flourish in an always-changing landscape.
