How Much Should Your Business Spend on Marketing? A Guide for Service-Based Businesses

When it comes to marketing budgets, many business owners struggle to determine how much is enough. For service-based businesses, the temptation to spend the minimum (around 2-3% of revenue) can be strong, but the truth is, if you want to see aggressive growth, your marketing budget needs to reflect that ambition. At Fierce Creative Solutions, we often recommend that businesses allocate 7-8% or more of their revenue towards marketing, especially in today’s competitive and rapidly changing landscape.

In this blog, we’ll dive into how you can build a solid marketing budget, set realistic expectations for growth, and determine how much you should spend depending on your business goals—especially in light of rising costs and increased competition. Let’s break it down.

Building a Marketing Budget: Where to Start

Before you start allocating a percentage of your revenue towards marketing, it’s essential to understand what a marketing budget should cover. Your marketing budget isn’t just for flashy ads—it’s the engine that drives your business’s growth. Here’s what to include in a comprehensive marketing budget:

1. Advertising Costs (Google Ads, social media ads, etc.)
2. Content Creation (blog posts, videos, social media content, etc.)
3. SEO and Website Management (website updates, SEO optimization, etc.)
4. Email Marketing (email platform fees, campaign creation)
5. Events and Sponsorships (local events, trade shows)
6. Marketing Software (CRM tools, analytics platforms, etc.)
7. Employee/Outsourced Marketing Team Costs (salaries, contractors, or agencies)

Once you’ve identified the elements of your marketing plan, you can start calculating how much you’ll need to spend to achieve your goals.

Setting Realistic Expectations for Your Marketing Spend

Marketing is an investment, not a one-time expense. The more you invest, the more likely you are to see returns. However, not all businesses need the same level of aggressiveness in their marketing. Your goals and how fast you want to grow will dictate how much you should invest.

Low Growth (2-3% of Revenue)

Many businesses want to spend as little as possible on marketing, which is often around 2-3% of their annual revenue. This level of investment is typically suitable for businesses that:

• Want to maintain their current client base with minimal growth.
• Are in a stable market with consistent demand.
• Are relying on word-of-mouth referrals and organic traffic.

Example: A business with $1 million in annual revenue spending 2% on marketing will allocate $20,000 a year, which only covers basic marketing efforts like maintaining a website, occasional ads, and some social media posts.

Moderate Growth (5-6% of Revenue)

For businesses looking for moderate growth, a 5-6% investment in marketing is more realistic. This allows for:

• Increasing visibility through a mix of digital ads, content marketing, and SEO.
• Running consistent campaigns to engage current customers and attract new ones.
• Stepping up branding efforts across multiple platforms.

Example: A business with $1 million in revenue spending 5% on marketing will invest $50,000 annually. This can include more frequent paid advertising, email campaigns, and improved website performance.

Aggressive Growth (7-8%+ of Revenue)

If your goal is aggressive growth—acquiring new customers rapidly, expanding your services, or entering new markets—you’ll need to invest more significantly, around 7-8% or more of your revenue. This approach is essential if:

• You’re in a highly competitive market.
• You want to scale quickly and outpace competitors.
• Your business growth relies heavily on lead generation and paid marketing strategies.

Example: A business with $1 million in revenue spending 8% on marketing will allocate $80,000 or more annually. This would fund a comprehensive marketing strategy including paid ads, content creation, social media management, SEO, email marketing, and more.

Factoring in Rising Costs: Why Your Marketing Budget Should Increase

We’re currently in a period of economic uncertainty, and with that comes increased costs across the board—including marketing. In a recession, many businesses cut their marketing budgets to save money, but this is often the opposite of what you should do if you want to stay competitive.

Cost Per Lead (CPL) Is Rising

As more businesses enter the digital advertising space, the cost per lead (CPL) is increasing. You’ll need to spend more to achieve the same results you might have seen last year. This makes it crucial to revisit your marketing budget and ensure you’re allocating enough to see real returns.

Inflation Impacts Marketing Costs

Inflation means that the cost of marketing services—whether it’s paid ads, software subscriptions, or content creation—has gone up. To maintain the same level of impact, your budget will need to account for these increases.

Why a Bigger Budget Helps During a Recession

During tough economic times, businesses that continue to invest in marketing often come out on top. With competitors cutting back, your brand has a unique opportunity to capture more market share by staying visible. Increasing your marketing budget during a recession can position you for faster growth once the economy recovers.

How to Calculate Your Marketing Budget Based on Growth Goals

Here’s a simple formula to help you calculate your annual marketing budget:

1. Step 1: Determine your annual revenue. Example: $1,000,000
2. Step 2: Choose a percentage based on your growth goals.some text
   • Low Growth: 2-3%
   • Moderate Growth: 5-6%
   • Aggressive Growth: 7-8%+
3. Step 3: Multiply your revenue by the chosen percentage.some text
   • Example: For aggressive growth, $1,000,000 × 8% = $80,000.
4. Step 4: Allocate your budget across the following categories:some text
   • Advertising: 40-50% (Google Ads, Facebook Ads, etc.)
   • Content Creation: 20-30% (blogging, video, social media)
   • SEO/Website Maintenance: 10-20%
   • Email Marketing: 5-10%
   • Miscellaneous: 5-10% (events, software, etc.)

Final Thoughts: Don’t Shortchange Your Marketing Budget

Marketing isn’t the place to cut corners, especially if you’re looking to grow your business. As a service-based business, you rely on leads and relationships to thrive, and that means you need to be visible, memorable, and accessible. A well-planned marketing budget can make all the difference between stagnation and growth.

At Fierce Creative Solutions, we recommend service-based businesses aim for a marketing spend of 7-8% of their annual revenue to drive real results. If you’re aiming for even faster growth, don’t be afraid to push beyond that.

Are you ready to take the next step in your marketing strategy? Let us help you build a plan that works for your business and your budget.

By following these guidelines, you can develop a realistic, growth-focused marketing budget that aligns with your business goals and the current market environment.

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