There is no magic number to serve as the amount a business should spend on marketing and advertising. How much you should allocate to such endeavors depends on your goals, your projected sales and your disposable income. However, it you can examine the methods of creating an advertising budget and the average percentages typical small businesses use in their calculations to determine what number is right for you.
If you are opening a new business, you may need to devote more of your budget to marketing. Many businesses devote between 20 and 30 percent of their total annual budget to advertising and marketing during the first and second years. If you are purchasing an existing business that is already well established, 7 to 10 percent of your total budget should be adequate.
You may choose to use the long-standing rule that a business’ marketing costs should be between 1 and 10 percent of annual sales. Adjust the percentage upward if you are launching a business that no one has ever heard of and adjust the percentage downward if you are opening a widely known franchise or continuing a well-known operation. Your percentages may also be on the high side if you sell “big-ticket” items with large profit margins.
Your industry may also be a factor; research what your competitors spend on, using resources like Dun and Bradstreet. Finally, analyze how much you can realistically afford to invest in advertising. Attracting new customers is futile if you cannot afford to keep the utilities connected or pay your rent.