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What Percentage of Your Profit Should You Invest in Marketing?

 

Every business owner has at one point, or the other asked themselves this question, ‘what percentage of your profit should you invest in marketing?’ Marketing being a core part of the general operations of a business, it is apparent that a noteworthy share of the profit should be invested here. Even so, there are no specific limitations to how much is the perfect percentage of the profit.

However, there is a couple of rule of thumbs that can help you come up with a reasonable amount for your marketing strategies and campaign. Follow through with this article to find out how best to allocate funds for your marketing arm, depending on different factors.

Nature of industry

It is impossible to entirely rely on the techniques of another company as the ones to execute in your business. Ideally, industries differ a lot. Some are more competitive than others. For example, the entertainment or fashion industry is way more competitive than the engineering or construction ones.

For this reason, you will realize that businesses under very competitive industries have to allocate a larger share of their profits to marketing more than the less competitive industry. The end goal is usually to stand out more than the competing brands, because the stronger your marketing campaigns, the more visible you are to the target audience.

Figure 1 marketing spending as per industry

Purpose of marketing

At the least of things, there are two reasons why companies market:

  1. To grow or gain a greater market
  2. To maintain the current position

Depending on which reason drives our marketing campaigns, the percentage to spend on the course changes. Ideally, when marketing to retain the current position, for example, as the leading brand in your industry, the recommended percentage is 5%. Since the business is performing to your satisfaction, then you do not need to put in a lot of efforts to change things. On the other hand, if your drive is to grow or gain a greater market, then you need to apportion a more significant percentage than the prior course. For such, you can opt for 10% of the total profit.

Your competition

Sometimes, everything you do is in line with the competition you are facing. Some brands are placed in such a tight spot by their competitors, so much that their marketing budget has to be very flexible. Such is a scenario common among two brands in the same industry, with equal financial muscles, and more or less the same influence over the target audience.

In simple terms, if you have a specific competitor you are always working to beat or outshine, then you may require to keep your percentages as flexible as possible, so you can fight with the giants to become the giant.

Expected results

Fair as it is to ask how much you should expect from your marketing investments, there is no easy answer to it. You must first understand that the marketing tactics you employ are meant to accomplish different goals. Some goals are short-term, and others long-term, and that should guide your expectations for them. For example, if your concern was branding, then you do not expect overnight results. It may require sums and sums of money over a consistent period for you to gather any tangible results.

Although your marketing team may have to guesstimate the expected results, still, it is valid to consider the expected results and ROI as a factor to guide the amount you apportion to your campaign and strategy.

If you want to understand how best to allocate funds, then be very intentional in requesting for a marketing budget from your marketing team. From here, you can determine which things to strike off the list, so you can perfectly blend your expected values with those indicated on the budget, for example, you can resolve for cheap rank trackers, and cut down on a certain amount.

Generally, the amount to consider investing in marketing should be guided by three main factors:

  1. The profit margins received – the more the profits, the more there is to work with
  2. Total operational cost – sometimes, your operational costs may surpass your financial muscles, which may require you to get into your profits. If you can comfortably support the operations of your business without needing to dig into the profit margins, then, by all means, feel free to explore deep into the realms of marketing.
  3. Priorities – if marketing is not at the top of your priority, then do not overstretch trying to cover too much on marketing, when your employers have not been paid for three months, or when you are running short of supplies.