How Much Should I Spend on Marketing? A Practical Guide to Budgeting Models
Short answer: it depends. Marketing isn’t only “paying for leads”—it also builds brand awareness, reputation, referrals, and long-term demand, and it can save your team time. Because businesses differ by industry, growth stage, and competitive landscape, there’s no single number that fits every situation. Instead, choose a budgeting model that matches your goals, data maturity, and time horizon.
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1) Percentage of Revenue
Allocate a fixed percentage of revenue to marketing. It’s simple, defensible, and scales with your business.
- Typical ranges: Maintain momentum: 3–6%; Stable/established growth: 7–12%; Aggressive growth / crowded markets: 13–22%+.
- Best for: Teams that want a quick, board-friendly rule with predictable spend.
- Watchouts: Doesn’t directly tie spend to unit economics or channel performance.
We developed a calculator for the Percentage of Revenue model- Check It Out! >
2) Competitive Parity / Share-of-Voice
Benchmark competitors’ spend and aim to match or exceed their share of voice (SOV) in key channels to gain share of market (SOM).
- How it works: Estimate category spend (industry reports, ad libraries), then budget to achieve target SOV.
- Best for: Mature markets where brand advertising matters.
- Watchouts: Hard to measure precisely; risk of overspending if rivals are inefficient.
3) LTV:CAC (Unit Economics)
Anchor spend to the lifetime value (LTV) of a customer versus your customer acquisition cost (CAC).
- Rule of thumb: Aim for LTV:CAC ≥ 3:1 while maintaining healthy payback (see next model).
- Best for: Subscription, repeat-purchase, or services with measurable retention and margins.
- Watchouts: Requires reliable LTV estimates; over-optimistic LTV can mask poor performance.
4) Payback Period (Cash-Flow Focused)
Budget so that acquisition investments pay back in a set timeframe (e.g., 3–9 months), critical for cash-constrained teams.
- Formula: Payback Months = CAC ÷ Monthly Gross Profit per Customer.
- Best for: High-growth companies managing runway; CFO-friendly.
- Watchouts: Can underinvest in brand if focused only on short payback channels.
5) Zero-Based / Objective-Based Budgeting
Start from zero each planning cycle. Price the media and resources needed to hit specific, quantified outcomes.
- Best for: Clear goals with reliable funnel benchmarks (impressions → leads → customers).
- Watchouts: Labor-intensive; vulnerable to optimistic assumptions.
6) Media Mix Modeling (MMM)
Use statistical models on historical spend and results to estimate each channel’s contribution, then allocate to maximize outcomes.
- Best for: Larger budgets and multi-channel brands with 12–24 months of data.
- Watchouts: Requires data, expertise, and regular recalibration.
7) Incremental Test-and-Learn
Allocate a base budget, then deploy small, time-boxed experiments with lift studies or geo-splits to validate incremental impact.
- Best for: Teams building data confidence; early-stage channels.
- Watchouts: Needs discipline and clean measurement to avoid false positives.
8) Marginal ROI / Diminishing Returns
Increase spend on a channel until the next dollar’s return falls below your target threshold, then reallocate.
- Best for: Performance media with clear response curves (search, paid social).
- Watchouts: Requires frequent curve updates; easy to chase short-term metrics.
9) Lifecycle / Stage-Based
Adjust marketing % and mix by business stage.
- Launch / Market Entry: Higher brand + awareness share, often 13–22%+ of revenue target.
- Growth / Scale: Balanced brand + performance, often 7–12%.
- Maintain / Harvest: Efficiency focus, typically 3–6%.
Quick Comparison
| Model | Great For | Strength | Risk |
|---|---|---|---|
| % of Revenue | Predictable planning | Simple, scalable | Not performance-tied |
| Competitive Parity | Established categories | Market-aware | Data fuzzy; herd behavior |
| LTV:CAC | Subscription / repeat | Unit economics-driven | LTV uncertainty |
| Payback Period | Runway management | Cash discipline | Underfunds brand |
| Zero-Based | Specific objectives | Goal-aligned | Time-consuming |
| MMM | Large, multi-channel | Holistic attribution | Complex, requires data |
| Test-and-Learn | New channels | Evidence-based | Needs rigor |
| Marginal ROI | Perf. media scaling | Efficiency at the margin | Short-term bias |
| Lifecycle / Stage | Evolving orgs | Contextual mix | Needs cross-team alignment |
How to Choose (Decision Tree)
- Need a fast, defensible starting point? Use % of Revenue, then adjust with a small test budget.
- Have solid unit-economics data? Anchor on LTV:CAC and set a payback guardrail.
- Competing in a loud category? Layer Competitive Parity / SOV to avoid under-spending.
- Big, multi-channel budget? Add MMM and Marginal ROI allocation.
- Uncertain channel performance? Run Test-and-Learn pilots with clear success criteria.
- Changing stage? Apply the Lifecycle lens (launch vs. maintain) to rebalance brand vs. performance.
Mini-Glossary of Terms
- % Basis: Whether your budget % is applied to current revenue, target revenue, or a midpoint between them.
- CAC (Customer Acquisition Cost): Total cost to acquire one new customer. Often estimated from CPL ÷ conversion rate if CAC isn’t tracked directly.
- Monthly Revenue Gap: The extra revenue per month required to reach your target annual revenue within a given time horizon.
- Posture Mid-%: The midpoint of your chosen budgeting band (e.g., 9.5% for a 7–12% “Established” posture) used as a planning anchor.
- LTV (Lifetime Value): Total revenue or gross profit expected from a customer over their lifecycle.
- Payback Period: Months until cumulative gross profit from a cohort covers the CAC.
- Share of Voice (SOV): Your share of category messaging or impressions across channels.
- Marginal ROI: The return of the next dollar spent in a channel; guides when to scale or cap spend.
