Just a quick Google ChatGPT search would spew out dozens of formulas on what your advertising spend should be. And if you agree that you should not spend 15% of annual revenue on advertising, we’d definitely agree with you, you shouldn’t! AND to back this up, we’d argue one main point – Advertising without strategy is basically throwing money away!

 

A common mistake many businesses make is creating visually appealing ads, plastering their logo as big as they can and throwing cash behind broad advertising campaigns. A few weeks later, no leads, no engagements and no sales. Ads perform poorly when there isn’t a strategy. A good advertising strategy hinges on a good marketing strategy and a good marketing strategy depends on a good business strategy. Because we don’t want this article to be a half hours’ worth of reading, here is good business strategy plan for starters.

Before we continue, we think it important to outline the difference between advertising and marketing. Marketing determines the who, why, and what; who are you selling to, why are you selling to them and what exactly are you selling. Advertising broadcasts what you provide to the public, once you have these answers, you can make informed decisions on how to advertise; remember, strategy!

So, how much should you spend on advertising?  

Your advertising budget should be a deliberate investment, not an arbitrary expense. It must be defined by a clear business strategy, honed by a marketing plan, and executed through a targeted advertising strategy while measuring key performance indicators. (Ok there was some mention of metrics after all, but we wouldn’t cover that now)

Because there are many factors to consider (business type, stage of product / service lifecycle, campaign purpose etc.) we’re not about to mete out a figure or percentage BUT rather some key considerations:

1. Start with Your Business Goal, Not a Budget.

Ask yourself: "What do I need advertising to do for my business?" Are you launching a new product? Entering a new market? Need to generate 50 qualified leads? The goal dictates the investment. A realistic goal will show you how much reach and frequency you need to buy, which directly translates into cost. The budget is the output of your plan, not the input.

 

2. Know Your Customer's Lifetime Value (LTV).

This is the "metric that shall not be named," but it's crucial for justification. If you know that a new customer is worth $1,000 to your business over their lifetime, you can work backward. How much are you willing to pay to acquire that customer? If you can acquire a customer for $300, that's a great return. This calculation (often called CAC - Customer Acquisition Cost) is considered the single most important number for determining a sustainable advertising spend.

 

3. Consider Your Business Stage.

New / Startup: You'll likely need to spend a higher percentage of revenue (or even operate at a loss initially) to build awareness and acquire your first customers. The focus is on growth.

Established / Mature: Your spending might be more about maintaining market share and defending against competitors / holding position. The budget may be more consistent and tied directly to predictable ROI.

 

4. Follow / Create a Sales Funnel.

Your advertising spend should be allocated across different stages of the customer journey. Top of Funnel (Awareness): Spend on broad, educational content to attract a large audience. Middle of Funnel (Consideration): Spend on targeted ads that nurture interested people, showcasing your value proposition. Bottom of Funnel (Conversion): Spend on retargeting ads and strong offers to convert warm leads into paying customers.

We reiterate: A common mistake is spending the entire budget only on top-of-funnel awareness and expecting immediate sales.

 

5. The Golden Rule: Test, Measure, Adapt.

Your initial budget is merely a hypothesis. Start small. Run a few targeted campaigns with a small spend. Then, look at the data: Which ad worked best? Which audience responded? Which platform delivered the lowest cost per lead? Use these real-world results to justify scaling your spend. Spend more on what works and cut what doesn’t. This turns your advertising from an expense into a smart, data-driven investment; again, remember, strategy!

 

Conclusion: So, What's the Number?

 

Well… there isn't one, pretty anticlimactic we know. But anyone who gives you a standard percentage without understanding your business is throwing caution, well, money to the wind. The right amount to spend is the amount that is strategically justified by your goals, informed by your customer's value, and validated by continuous testing.

 

It’s the cost of effectively reaching the right people with the right message to achieve a specific business objective. Stop thinking about "how much I should spend" and start planning for "what I need to invest to achieve my goal." That’s the strategic shift that separates thrifty advertisers from wasteful ones.

 

We hope you find this article useful and we do hope you’ve started evaluating and mapping your strategies during this read. If not, we’re here to help! Contact us now!