Ask how much a business should spend on marketing and you will usually get an answer expressed as a percentage.
Five per cent of revenue. Ten per cent if you are trying to grow. More if you are launching something new.
It sounds reassuringly simple.
Unfortunately, it is not particularly useful.
Two businesses with exactly the same turnover can have completely different margins, growth ambitions, customer values, sales cycles and competitive pressures. Giving both of them the same marketing budget because they happen to generate the same revenue makes very little sense.
A better question is:
What are we trying to achieve, and what can we afford to pay to achieve it?
That changes the conversation considerably.
Start with the commercial target
Marketing budgets make much more sense when you work backwards.
Imagine a business wants to generate an additional £1 million in revenue next year.
If the average new customer is worth £10,000 in first-year revenue, the business needs 100 new customers.
If 20% of qualified opportunities become customers, it needs around 500 genuine opportunities.
If one in five marketing leads becomes a qualified opportunity, it needs approximately 2,500 leads.
Now we have something useful to work with.
Instead of arguing about whether marketing should receive 5% or 8% of turnover, we can start asking better questions.
What does it currently cost us to generate an opportunity?
How much does it cost us to acquire a customer?
How much gross profit does that customer create?
How quickly do we recover the acquisition cost?
What happens to customer value after the first purchase?
Those questions tell you considerably more than a generic industry percentage.
Customer acquisition cost changes the calculation
One of the most useful numbers a growing business can understand is customer acquisition cost, or CAC.
At its simplest:
CAC = total acquisition spend ÷ new customers acquired
Spend £100,000 acquiring customers and win 500 new customers, and your CAC is £200.
Whether that is excellent or terrible depends entirely on what those customers are worth.
If the average customer produces £4,000 in gross profit over their relationship with the business, spending £200 to acquire one looks extremely attractive.
If they produce £220, considerably less so.
That is why marketing investment cannot be separated from the economics of the business.
The right marketing budget is not simply about what you are comfortable spending. It is about how much you can profitably invest in growth.
Revenue isn't the same as return
Revenue can also make marketing performance look healthier than it really is.
Generating £100,000 of sales sounds impressive.
But if delivering those sales costs £80,000, the economics look very different from a business where the same £100,000 produces £70,000 of gross profit.
That should influence what you are willing to pay to acquire the customer in the first place.
Marketing reporting becomes much more useful when acquisition data is connected to commercial data.
Margin matters.
Retention matters.
Repeat purchases matter.
Lifetime value matters.
A campaign should not be judged solely on how much revenue appeared in a dashboard.
Growth ambitions matter too
Percentage benchmarks have another weakness. They ignore ambition.
A mature company trying to protect an established market position should not necessarily invest at the same rate as a challenger trying to double its market share.
If you want dramatically different results, you will usually need to do something different.
That could mean increasing media investment.
It could mean improving the creative.
It could mean entering a new channel.
It could mean investing in CRM so that existing customers become more valuable.
Or it could mean building brand recognition before every pound can be neatly attributed to an individual sale.
The useful question is:
How much growth do we want, how quickly do we want it, and what are we prepared to invest to create it?
That is a strategy question, not simply a budgeting exercise.
Don't confuse your media budget with your marketing budget
Another common mistake is treating advertising spend as the entire marketing budget.
If you are spending £20,000 on paid media, that does not necessarily mean your marketing investment is £20,000.
Effective marketing may also require strategy, creative development, photography, video, landing pages, SEO, CRM, email, technology, reporting and people.
More importantly, those things affect one another.
Another £5,000 of media will not necessarily improve performance if the advertising is easy to ignore.
More Google Ads budget will not fix a landing page that does not convert.
More leads will not produce more revenue if nobody follows them up properly.
Sometimes the best use of the next pound of marketing budget is not buying another click.
It is removing whatever is stopping the existing investment from working harder.
Work backwards, then test forwards
None of this means you can create a spreadsheet that predicts marketing perfectly.
You can't.
Markets change. Competitors react. Creative performance varies. Media costs fluctuate. Conversion rates move.
The point of the maths is not to predict everything.
It is to give you a rational starting point.
Start with the commercial goal. Understand what a customer is worth. Establish what you can afford to spend acquiring one. Model how many customers, opportunities and leads you need.
Then test whether the real-world numbers support the model.
If you can afford to spend £500 acquiring a customer and consistently acquire one for £200, there may be an argument for investing considerably more.
If the model only works at a £100 CAC and the market is consistently costing you £600, increasing the advertising budget is unlikely to solve the problem.
Something else needs to change.
The proposition. The creative. The conversion rate. The sales process. The margin. The customer value.
That is why good marketing strategy is much broader than choosing channels.
There is no magic percentage
Benchmarks still have a role.
They can tell you whether your investment looks unusually high or low compared with similar organisations. They can be useful when creating an initial plan.
But they should be a reference point, not the strategy.
A £500,000 marketing budget producing profitable, scalable growth could be conservative.
A £50,000 budget producing very little could be excessive.
The number only makes sense in the context of what it produces.
The best marketing budgets therefore start with the business.
What are you trying to grow?
How much is that growth worth?
How many customers will it require?
What can you afford to pay to acquire them?
Where are the constraints?
Answer those questions and the budget becomes considerably easier to defend.
Because the objective should never be to spend a particular percentage on marketing.
It should be to invest the right amount to create profitable growth.
At Formore, our approach to marketing strategy starts with the commercial objective and works backwards. We decide what marketing needs to change before deciding where the money should go.