Annual Planning: What Should Your Total Budget Be, Based on Revenue?

Dec 6, 2016

By Laura Borgstede

Throughout the months of November and December, Calysto has committed to helping you with your Annual Planning process. (This can be applied even if you’re not on a fiscal January – December calendar year.) We’ve providing checklists of the information you’ll need to gather before starting your Annual Marketing Plan, as well as a white paper on how to do go through the process. Now it’s time to talk budget.

First thing’s first. Your marketing budget should be a percentage of budget-750x400.jpgrevenue, not profit. At Calysto, we believe that to stand out in the highly competitive field of communications technology, 10-15% of revenue is the bare minimum a midsized company must spend on marketing. So, for example, a company aiming for $10 million in revenue would budget at least $1 million for marketing.

But is 10-15% right for your organization? It depends on a number of factors that are unique to your company. To figure out what’s right for your organization, ask yourself these questions:

  • How large is your company?
  • How competitive is your market?
  • How many years have you been in business?
  • What is your current level of brand awareness?
  • Are you introducing a new product into the market, or are you marketing for an existing product set?
  • What is your expected sales volume? (Believe it or not, the more you sell, the less you may have to spend)
  • What are your business goals for the year?
  • Are you aiming for market leadership in one particular category?
  • Are you trying to educate the market on “the problem” as well as your solution?

Typically, the larger the enterprise, the larger the percentage of revenue that should be going towards their marketing budget. Large, well-established organizations, in highly competitive industries, may spend upwards of 20% of revenue on marketing. That’s not always, the case, of course and depends on the conditions listed above.

Established midsized companies in extremely competitive markets also need to increase their investment in marketing to gain a leg up on the competition or create market leadership. Here, we recommend companies spend 15-18% of revenue on marketing.

Start-ups, however, are an entirely different beast. They have no sales to begin with, but need to spend a high percentage of capital on PR and analyst relations support in order to create awareness for a virtually unknown product or service.

Lastly, the overall goals for your business can make all the difference. Whether you want to launch a new product, increase sales, cultivate thought leadership or maintain your spot as the number one provider of a specific service, this will affect how much you need to spend on marketing, and what tactics you’ll need to utilize to meet that goal.

Stay tuned for our next blog on “How to Spend” your marketing dollars. We will give you some guidelines that can be applied to any size marketing budget.

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Topics: annual planning, marketing budget