Marketing Budget Rules Are Broken. Here’s How to Set One That Works

Most companies spend somewhere between 5% and 15% of revenue on marketing, depending on their industry, growth stage, and how much pressure the CFO is applying that quarter. But the percentage itself is not the answer. It is a starting point for a conversation that most leadership teams never quite finish.

The more useful question is not how much you should spend, but what your marketing investment needs to achieve and whether the number you are considering is capable of achieving it. Those are different questions, and conflating them is where most budget decisions go wrong.

Why Most Marketing Budget Conversations Start in the Wrong Place

The most common approach to setting a marketing budget is to look at last year’s number, apply a small adjustment based on how the business performed, and call it done. It is fast, it avoids difficult conversations, and it produces a number that is almost certainly wrong.

I spent years on the agency side watching clients go through this process. A brand manager would come into a planning meeting with a budget that had already been decided by the finance team, and the conversation would then be about how to allocate it rather than whether the number was fit for purpose. The strategy was reverse-engineered from the budget, not the other way around. That is a reliable way to produce mediocre results.

The better starting point is commercial intent. What does the business need marketing to do over the next 12 months? Acquire new customers? Retain existing ones? Enter a new market? Defend share against a competitor who has just increased their spend? Each of those objectives carries a different price tag, and none of them can be priced accurately by looking at what you spent last year.

This is one of the core tensions in marketing operations: the gap between how budgets are set and how marketing actually works. Closing that gap requires treating marketing as a business function with commercial accountability, not a department that submits a wish list and waits to see what survives the finance review.

What the Benchmarks Actually Tell You

Benchmarks exist and they are worth knowing, but they require context to be useful. The commonly cited range of 5% to 15% of revenue covers an enormous amount of variation. A mature B2B software business selling to enterprise clients through a direct sales team will sit at the lower end. A direct-to-consumer brand competing in a crowded category on paid social will be at the upper end or beyond it.

Forrester has tracked B2B marketing budget trends over time and consistently found that B2B marketing budgets are more constrained than headlines suggest, with the relationship between marketing spend and revenue growth being far less linear than most planning models assume. That is worth sitting with. Spending more does not automatically produce proportionally more growth, and spending less does not automatically damage performance in the short term.

The Semrush analysis of marketing budget allocation across industries shows similar variation. Consumer goods companies have historically spent at the higher end of the range. Professional services firms sit lower. Technology companies tend to front-load spend during growth phases and pull back once the category is established.

What benchmarks cannot tell you is whether a given percentage is appropriate for your specific situation. They tell you what comparable businesses spend, not what you should spend. Those are related data points, not the same data point.

The Growth Stage Factor That Most Benchmarks Ignore

One of the clearest variables in marketing budget decisions is where a business sits in its growth cycle, and most percentage-of-revenue benchmarks flatten this out in a way that makes them misleading.

A business in its first three years of operation, building brand awareness and acquiring its initial customer base, will almost certainly need to spend a higher percentage of revenue on marketing than the benchmarks suggest. Revenue is low. The cost of acquiring customers is high. The brand is unknown. You are paying to create demand that does not yet exist, which is categorically different from marketing in a category where customers already know they need what you sell.

When I was at iProspect and we were growing the business from around 20 people to over 100, the investment in positioning, in thought leadership, in the kind of work that makes a prospective client trust you before they have ever spoken to you, was disproportionate to our revenue at the time. It had to be. You cannot grow by spending only what your current revenue can comfortably support. At some point you have to invest ahead of the return.

At the other end of the curve, a mature business with strong brand recognition and a well-established customer base can often spend less as a percentage of revenue and maintain performance. The brand is doing work that the media budget would otherwise have to do. The question is whether you are genuinely in that position or whether you have convinced yourself you are to justify cutting the budget.

The Unbounce team documented this tension well when they wrote about scaling a marketing team from one person to thirty-one. The spend decisions that make sense at one headcount and revenue level look completely different twelve months later. Growth stage changes the calculus in ways that a static percentage benchmark cannot capture.

B2B vs B2C: The Difference Is Real but Often Overstated

The conventional wisdom is that B2B companies spend less on marketing than B2C companies, and as a broad generalisation that holds. But the gap is narrower than most people assume once you account for everything that B2B marketing actually involves.

B2B marketing budgets often exclude spend that is functionally marketing but sits in a different budget line. Sales enablement content, trade show presence, CRM investment, account-based marketing programmes, and the time cost of subject matter experts contributing to thought leadership are all marketing activity. When you add those in, the percentage of revenue that B2B businesses invest in marketing-adjacent activity is often closer to their B2C counterparts than the headline numbers suggest.

Forrester’s work on the relationship between sales and marketing teams highlights another dimension of this. In B2B organisations, the boundary between marketing spend and sales spend is genuinely blurry. A business development director attending an industry conference is doing marketing. A technical consultant writing a white paper is doing marketing. The question of how much the company spends on marketing depends significantly on where you draw the line.

The practical implication is that B2B businesses should be careful about using B2C benchmarks as a ceiling, and B2C businesses should be careful about assuming their spend is automatically more efficient because the percentage looks higher. Context matters more than the comparison.

How to Set a Marketing Budget That Is Actually Defensible

The most defensible marketing budget is one built from commercial objectives downward, not from last year’s spend upward. That sounds obvious. It is also genuinely rare in practice.

Start with what the business needs to achieve. Not marketing objectives. Business objectives. Revenue targets, customer acquisition numbers, retention rates, market share goals. Then work backward to understand what marketing activity is required to support those outcomes, and what that activity costs.

This approach forces a conversation that percentage-based budgeting avoids: whether the objective is achievable with the budget being proposed. If the business needs to acquire 5,000 new customers and the average cost of acquiring a customer in your category is £200, the maths is straightforward. You need at least £1 million in acquisition spend, plus whatever you need to invest in retention, brand, and infrastructure. If the proposed budget is £400,000, you either need to revise the objective or revise the budget. Trying to do both with neither is how businesses end up with marketing that looks busy but produces nothing.

I have had this conversation with CFOs more times than I can count. The instinct is to treat marketing as a cost to be minimised rather than an investment to be sized appropriately. That instinct is not unreasonable from a finance perspective. The job of the marketing leader is to make the commercial case clearly enough that the conversation shifts from “how little can we spend” to “what do we need to spend to hit the number.”

The Measurement Problem That Distorts Every Budget Conversation

One reason marketing budgets are so often set by instinct or precedent rather than evidence is that the evidence is genuinely hard to produce. Most businesses cannot tell you with confidence what their marketing spend actually generated in revenue. They can tell you what their analytics platform reported, which is a different thing.

Attribution models, last-click or otherwise, tell you a story about the customer experience. They do not tell you the whole story. A customer who converted after clicking a paid search ad may have been influenced by a display impression three weeks earlier, a piece of organic content the month before that, and a conversation with a colleague who had seen one of your LinkedIn posts. The paid search ad gets the credit. The rest of the activity is invisible in the numbers.

This matters for budget decisions because channels that show up well in attribution models attract more budget, and channels that do not show up well lose budget, regardless of whether the attribution model is accurately reflecting reality. Over time, this produces a portfolio that is optimised for measurability rather than effectiveness.

I judged the Effie Awards for several years, and one of the consistent observations from that process was how few entries could demonstrate a clean causal link between their marketing activity and their business results. The ones that could were almost always the ones that had invested in proper measurement infrastructure before the campaign launched, not after. Measurement is not a reporting function. It is a planning function, and it needs to be resourced accordingly.

The practical implication for budget setting is that you should allocate a portion of your marketing budget to measurement and analytics before you allocate anything to channels. Not as an afterthought. Not as a line item that gets cut when the overall budget is squeezed. As a foundational investment that determines whether the rest of the budget can be evaluated at all.

Where Most Marketing Budgets Actually Leak

The most common source of waste in a marketing budget is not a bad channel decision or a failed campaign. It is inertia. Spend that continues running because no one stopped it, not because anyone evaluated it and decided it was working.

In every agency review I have ever run, and in every client audit I have ever been part of, there is always a category of spend that survives year after year because it was approved once and never revisited. A sponsorship that made sense three years ago when the target audience was different. A retainer with a supplier whose scope has quietly narrowed to almost nothing. A paid channel that is still running at full budget despite the conversion rate having halved over the past eighteen months.

The Optimizely framework for structuring a brand marketing team touches on this indirectly: the way a team is organised determines what it pays attention to, and most teams are not organised in a way that makes it easy to identify and cut underperforming spend. The people closest to a channel are usually the people least motivated to recommend cutting it.

A useful discipline is to treat a portion of every budget cycle as a zero-based review. Not zero-based budgeting in the full academic sense, which is operationally impractical for most businesses, but a genuine question applied to every significant line item: if we were not already doing this, would we choose to start? If the answer is no, the burden of proof should be on the people who want to continue it, not on the people who want to stop it.

What a Healthy Marketing Budget Distribution Looks Like

There is no universal answer to how a marketing budget should be split across channels and functions, but there are some principles that hold across most situations.

Brand and performance should both be funded, not traded off against each other. The pressure to cut brand spend in favour of performance channels is understandable because performance channels are easier to measure in the short term. But the evidence from businesses that have made this trade-off consistently is that it works for a period and then stops working, because performance channels depend on brand equity to function efficiently. A business with weak brand recognition pays more to acquire customers through paid channels than a business with strong brand recognition. The brand investment is not separate from the performance investment. It is what makes the performance investment cheaper over time.

Content and organic channels deserve investment proportional to their long-term value, not their short-term measurability. A piece of content that generates qualified traffic for three years has a very different return profile than a paid ad that runs for three weeks. Most budget models do not account for this difference, which means organic channels are systematically underfunded relative to their actual contribution.

Influencer and partnership marketing has matured significantly as a channel. Later’s resource on influencer marketing planning reflects how much more structured this space has become. If it is part of your mix, it should be treated with the same rigour as any other paid channel: clear objectives, defined measurement, and a review process that is not dependent on the relationship with the influencer.

Finally, technology and infrastructure. Most marketing budgets underinvest here relative to the dependency the rest of the budget has on it working properly. A CRM that does not integrate with your analytics platform, a website that loads slowly on mobile, an email system that cannot segment properly: these are not IT problems. They are marketing problems, and they limit the return on everything else you spend.

If you want to go deeper on how budget decisions connect to the broader discipline of running marketing as a business function, the marketing operations hub covers the infrastructure, measurement, and planning frameworks that sit underneath the spend decisions most teams are focused on.

The Conversation You Need to Have Before You Set the Number

Marketing budget conversations are almost always easier and more productive when they happen after the business has agreed on its commercial priorities for the year, not before. When the objectives are clear, the budget conversation is about resourcing a plan. When the objectives are vague, the budget conversation is about defending a number, which is a much harder position to be in.

The question “how much should we spend on marketing” is really a proxy for a more important question: what do we need marketing to achieve, and what is that worth to us? A business that can answer the second question clearly will find the first question considerably easier to answer.

That does not mean the number will always be comfortable. There will be years where the honest answer is that achieving the objective requires more investment than the business can currently support, and the choice is between revising the objective or finding a way to fund the gap. Both are legitimate responses. The illegitimate response is to keep the objective, cut the budget, and expect the marketing team to bridge the gap through ingenuity. Sometimes they can. More often, they cannot, and everyone spends twelve months pretending otherwise.

About the Author

Keith Lacy is a marketing strategist and former agency CEO with 20+ years of experience across agency leadership, performance marketing, and commercial strategy. He writes The Marketing Juice to cut through the noise and share what works.

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