Know-How Exchange : Advertising/PR

The range is huge: from less than 1% to more than 50%. It's a function of the industry, and even more a function of the goals, where a company/product is in its life cycle, profit margins, and the return a company is able to generate with various marketing tools.

It also depends on what you count as a marketing expense. Some companies include sales commissions, while others don't. Some include R&D, while others don't. Some include salaries for marketing folks, while others don't. Etc.

I agree with Michael: the range can be as wide as you want it to be, and yes, the percentage CAN vary from industry to industry and from niche to niche.

As Michael's said, there are lots of variables: product cycles, seasonal adjustments in demand and desire for your products or services.

Because of this, percentages of expenditure of marketing may need to be project or product based. And ideally, every individual product or service as a marketable entity needs to be cost centered, with marketing factored into each cost center as an element of expenditure from which a projected return is expected.

I know of one CEO of a major business chain in the state of California (with over $250 million in gross revenues) who INSISTS that his total marketing budget be no more than 2.5 percent of gross operating. He says that if the amount is higher than this, that there's something wrong with his business model.

The percentage you arrive at may need to depend on your desired growth, but if you're to do so, you need to be sure that each dollar you earmark for marketing brings back three, or four, or even higher in terms of its weight in revenue. So, you might want to calculate your desired revenue over a set period and work backwards from there, allocating marketing expenditure as a percentage of predicted income.

I would like to know the reason for this question. My point is that if you are starting your own business, do some PPC* advertising. It is cheap, fast and gives results that can be scaled. Once you have a positive return on investment - that is to say, you are able to make a profit from your business from the money you are spending on this, you can spend more and know that it will bring in a reasonable return. You can use the results of fine-tuning your PPC campaigns in other advertising media - and know that you will have a reasonable expectation of it being successful.

*Google search advertising, pay per click