Marketing Budget: What You Should Spend

Marketing spend as a percentage of revenue typically ranges from 5% to 20%, depending on your sector, growth stage, and competitive position. But that range is almost useless on its own. The more important question is not what percentage to spend, but what you are trying to achieve, and whether your current budget is structured to do it.

I have sat in hundreds of budget conversations across my career, from early-stage businesses trying to justify their first meaningful marketing investment, to large enterprises defending nine-figure ad budgets in front of CFOs who wanted the number cut. The businesses that got this right were not the ones with the biggest budgets. They were the ones who could articulate what the money was for.

Why Most Marketing Budget Conversations Start in the Wrong Place

The standard approach to setting a marketing budget goes something like this: look at what you spent last year, adjust for inflation and any new initiatives, and present a number that is defensible enough to survive a board meeting. It is a process built around precedent, not purpose.

When I was running an agency and growing the team from around 20 people to over 100, I watched this pattern play out with clients across almost every sector. The businesses that were growing consistently were not the ones with the most sophisticated attribution models or the most aggressive spend targets. They were the ones who had a clear view of where their growth was actually going to come from, and they built their budgets backward from that.

That sounds obvious. In practice, it is rare. Most businesses set a budget first and then try to figure out what to do with it. The better sequence is to define your commercial objective, work out what marketing activity is genuinely required to support it, and then cost that activity. You may end up at a similar number. But you will have a fundamentally different level of confidence in it.

If you are thinking about marketing investment as part of a broader go-to-market review, the articles in the Go-To-Market and Growth Strategy hub cover the strategic framing that should sit behind these decisions.

What the Benchmarks Actually Tell You

Benchmarks exist, and they are worth knowing. B2B technology companies often spend 15% to 20% of revenue on marketing. Consumer goods companies can go higher. Professional services firms tend to sit lower, often in the 5% to 10% range. These figures come from surveys, analyst reports, and industry associations, and they reflect real spending patterns across large samples of businesses.

But they are averages. And averages flatten the things that matter most.

A business in a high-growth phase competing in a crowded category needs to spend differently from a mature business with strong brand recognition and a loyal customer base. A company entering a new market needs to spend differently from one defending its existing position. A challenger brand needs to spend differently from the category leader. None of that nuance survives the experience from industry benchmark to budget spreadsheet.

Use benchmarks as a sanity check. If you are spending 2% of revenue on marketing in a category where competitors are spending 15%, that gap deserves scrutiny. If you are spending 25% and your competitors are spending 8%, that also deserves scrutiny. But do not use benchmarks as a target. They are a prompt for a better question, not an answer.

The Variable That Changes Everything: Growth Stage

Growth stage is probably the single biggest determinant of how much you should spend on marketing, more than sector, more than company size, and certainly more than what your competitors appear to be doing.

Early-stage businesses need to spend disproportionately on marketing relative to revenue. You are buying awareness, category presence, and the right to be considered. You are also learning what works, which is expensive. Expecting early-stage marketing spend to pay back on a 12-month ROAS model is a category error. You are not harvesting demand. You are creating the conditions for it.

Growth-stage businesses face a different challenge. You have product-market fit, you have some revenue, and now you need to scale. This is where the temptation to over-invest in performance channels becomes dangerous. Performance marketing is efficient at capturing people who are already close to a buying decision. It is much less efficient at building the brand salience that puts you on the shortlist in the first place. A business that spends 90% of its marketing budget on paid search and retargeting is not scaling its market. It is mining the seam it already has.

Mature businesses have a different problem again. They often have strong brand recognition and established distribution, but their marketing spend has calcified around channel habits that made sense five years ago and have not been seriously questioned since. I have seen businesses spending millions on channels they could not justify if they started from scratch today, simply because nobody had built a strong enough case to change the allocation.

The Performance Marketing Trap

Earlier in my career, I was as guilty of this as anyone. I overvalued lower-funnel performance activity because it was measurable, and measurable felt safe. You could point to a cost-per-acquisition, a return on ad spend, a conversion rate. The numbers looked good. The case for continued investment was easy to make.

What I came to understand, and what took longer to accept than it should have, is that a significant portion of what performance marketing gets credited for was going to happen anyway. Someone who types your brand name into a search engine and clicks a paid ad was probably going to buy from you regardless of the ad. You paid for the conversion. You did not cause it.

That is not an argument against performance marketing. It is an argument against treating it as the whole strategy. Performance channels are efficient at the bottom of the funnel because the work has already been done further up. If you starve the top of the funnel to protect the bottom, you eventually run out of people to convert. The pipeline dries up. The cost-per-acquisition creeps up. And by the time the problem is visible in the numbers, you are already 18 months behind.

Think of it like a clothes shop. A customer who has already tried something on is far more likely to buy than one who has never encountered the brand. Performance marketing is brilliant at serving the person who has already tried the jacket on. Brand marketing is what gets them into the shop in the first place. You need both, and you need to fund both honestly.

The tension between brand investment and performance spend is one of the more persistent challenges in go-to-market strategy, and it tends to get harder as markets become more crowded and buyer attention becomes more fragmented.

How to Structure a Marketing Budget That Actually Makes Sense

There is no formula that works for every business, but there is a logic that works for most of them. Start with your commercial objectives for the year. Not marketing objectives. Commercial objectives. Revenue targets, customer acquisition goals, retention rates, market share ambitions. Whatever the business is actually trying to achieve.

Then work backward. What marketing activity is genuinely required to support those objectives? Not what you did last year, not what your competitors appear to be doing, not what a vendor has pitched you on recently. What does the business actually need?

Break that activity into three buckets. The first is demand creation: activity that builds awareness, consideration, and brand preference among people who are not yet in a buying cycle. This is the investment most businesses underweight. The second is demand capture: activity that converts people who are already in-market. This is where most businesses over-invest. The third is retention and expansion: activity that keeps existing customers engaged, reduces churn, and grows account value. This is the bucket that often gets treated as an afterthought but frequently offers the best return.

The right split between these three buckets will vary. A business with a strong existing customer base and high lifetime value should weight retention more heavily. A business entering a new category needs to weight demand creation more heavily. A business with a short sales cycle in a high-intent category can justify more spend on demand capture. There is no universal ratio, but a business that has 80% or more of its budget in the capture bucket should ask itself an honest question about where its future customers are coming from.

Understanding how market penetration works is useful context here. Most growth comes from acquiring new buyers, not from selling more to existing ones. That has direct implications for how you should weight your investment across the funnel.

The Measurement Problem and Why It Distorts Budgets

One of the most consistent patterns I saw across the agencies and clients I worked with is that budgets flow toward what is measurable, not necessarily toward what is effective. This is understandable. It is easier to justify spend on a channel with a clear attribution model than on one where the impact is real but diffuse.

But this creates a systematic bias. Upper-funnel brand activity is genuinely harder to measure with precision. The impact plays out over months and years, not days and weeks. It influences consumer behaviour in ways that do not show up cleanly in a last-click attribution model. So it gets cut, or it never gets funded in the first place, and the business becomes increasingly dependent on capturing the demand it already has rather than expanding the pool.

I judged the Effie Awards for several years, and one of the things that struck me about the most effective campaigns was how rarely they were built around a single measurable channel. The work that drove real commercial outcomes tended to operate across multiple touchpoints, with a clear creative idea running through all of them. The measurement was often imperfect. The results were not.

Marketing does not need perfect measurement. It needs honest approximation. That means being willing to invest in activity where you can see the directional impact even if you cannot attribute every conversion precisely. It means resisting the temptation to defund brand activity because it does not show up cleanly in your analytics platform. And it means being honest with your leadership team about the limits of what attribution models can actually tell you.

Tools like behavioural analytics can help you understand how users are actually engaging with your marketing, which adds useful qualitative texture to the quantitative data. But no tool gives you a complete picture, and treating any single data source as definitive is how you end up making confident decisions based on a partial view of reality.

What CFOs Actually Want to Hear

Most marketing budget conversations with finance teams go badly for the same reason: marketers arrive with a channel plan and a spend request, and finance teams respond with a demand for ROI evidence. Both sides are talking past each other.

What a CFO actually wants to know is whether the marketing investment is going to generate a return that justifies the outlay, and whether the person asking for the money understands the business well enough to be trusted with it. You do not need a perfect attribution model to answer those questions. You need a coherent commercial argument.

That means being able to explain what you are trying to achieve, why the proposed activity is the right way to achieve it, what the expected return looks like over what timeframe, and what you will do if it is not working. It also means being honest about uncertainty. A CFO who has been in business for more than five minutes knows that marketing outcomes are probabilistic, not guaranteed. They do not expect certainty. They expect rigour.

When I was running a business that was turning around from loss-making to profitable, the marketing budget conversation was one of the most important ones I had. I could not justify spend on the basis of historical performance, because the historical performance was poor. I had to make a forward-looking case based on where the growth was going to come from, what marketing activity would support it, and why the investment was necessary rather than discretionary. That discipline made the budget better, not just more defensible.

Strategic frameworks like those from BCG on go-to-market strategy can be useful reference points when building that kind of commercial case, particularly for businesses operating in complex or regulated categories.

The Real Cost of Underspending on Marketing

There is a tendency in budget conversations to treat marketing spend as a risk. Spend more, risk more. Cut the budget, reduce the risk. This logic is wrong, and it causes real damage to businesses that follow it.

Underspending on marketing is not a neutral position. It is a decision to cede ground to competitors who are investing, to allow brand salience to erode, and to become increasingly dependent on a shrinking pool of existing demand. The cost of that decision is real, but it is diffuse and slow-moving, which makes it easy to ignore until it is too late to reverse quickly.

I have watched businesses cut their marketing budgets in response to short-term revenue pressure, protect their margins for a quarter or two, and then spend the next two years trying to rebuild the brand equity and customer pipeline they gave up. The maths rarely works out in their favour. The cost of rebuilding is almost always higher than the cost of maintaining.

That does not mean spend should never be cut. There are times when reducing marketing investment is the right call, particularly if the existing spend is poorly structured or if the business is facing existential pressure that requires immediate cash preservation. But those decisions should be made with a clear understanding of what is being given up, not with the comfortable fiction that cutting marketing is a cost saving with no downside.

For businesses thinking about how to structure growth investment more broadly, the thinking around product launch and market entry strategy offers useful framing, even outside the sectors it was written for. The principle that upfront investment creates the conditions for sustainable returns applies across categories.

A Practical Starting Point for Setting Your Budget

If you are starting from scratch or reassessing an existing budget, here is a sequence that works in practice.

Start with your revenue target and work out what customer acquisition volume you need to hit it. Factor in your average deal size, your expected churn rate, and the contribution from existing accounts. That gives you a rough demand target for marketing to support.

Then look at your current conversion rates across the funnel. How many leads or opportunities do you need at the top of the funnel to generate the volume of customers you need at the bottom? That gives you a volume target for demand generation activity.

Now look at what it costs, realistically, to generate that volume of demand. Not what it cost last year, but what it would cost to do it well, with the right mix of brand and performance activity, in the current market conditions. That is your baseline budget requirement.

Compare that to what you are currently spending and what you can afford to spend. If there is a gap, you have a choice: reduce your revenue ambitions, find efficiencies in your marketing activity, or make the case for additional investment. All three are legitimate options. The mistake is to pretend the gap does not exist and hope the numbers work out anyway.

The broader thinking on growth strategy, from market penetration to expansion planning, is something I cover across multiple articles in the Go-To-Market and Growth Strategy hub. The budget question rarely exists in isolation from those bigger strategic questions.

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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