Marketing Spend: % of Revenue or % of Profit?

Would you be more comfortable spending three percent of revenue on marketing, or 33 percent of profits on marketing?

Daniel Brzezinski, GetResponse COO, has a seemingly breath-taking bit of advice for small and medium-sized business spending levels on marketing spend. 

The levels depend on where an SMB is in its lifecycle. A well-established company focused on retention rather than new customer acquisition “can spend around two thirds or only one third of your income on marketing and advertising,” Brzezinski says. 

We can assume he does not mean that percentage of gross revenue, but most likely percentages of profit. 

Newer companies “could spend up to three fourths of your profit on marketing,” he says. 

That sounds like an impossibly-high allocation, but compares reasonably closely to the perhaps more common metric of spending as a percentage of revenue. 

Firm Revenue	5,000,000	10,000,000	15,000,000
Profit %	0.11	0.11	0.11
Profit	550000	1100000	1650000
3% of Rev.	150000	300000	450000
7% of Rev.	350000	700000	1050000
33% of Profit	181500	363000	544500
66% of Profit	363000	726000	1089000

Source: IP Carrier

Rules of thumb that suggest marketing spend levels for small businesses generating less than $5 million annually be set at seven to eight percent of gross revenue. That includes both marketing and advertising, for firms  with a net profit margin, after all expenses, in the 10 percent to 12 percent range.

That, at least is the recommendation from the U.S. Small Business Administration.

More common rules of thumb call for spending two percent to three percent of revenue on marketing and advertising, but as much as 20 percent if a firm is in a competitive industry. 

As it turns out, at an 11-percent profit margin, spending three percent of revenue or 33 percent of profit winds up being relatively-similar commitments.