One of the questions we are frequently asked at Buymedia is how much should we spend on our Advertising.
Like everything else we do we base this on data and insights from the best advertisers in the market.
A 2016 survey of 168 Chief Marketing Officers revealed that marketing budgets account for as much as 40 percent of a firm’s budget, with a median of 10 percent of the overall budget and a mean average of 12 percent. When shown as a percentage of overall revenue, the mean was 8 percent and the median was 5 percent.
In 2020 Amazon officially overtook P&G as the world’s biggest spending advertiser. The company invested $11 billion on advertising in 2019.
As we can see from the above chart Amazon’s advertising spend has risen exponentially over time. With an average of a 30% year on year increase in advertising over the last 7 years.
Amazon has invested in advertising to fuel revenue growth. As can be seen from the graph below revenue growth tracks growth in Advertising spend. Amazon invests in Advertising and sales grow.
How can we use the success of Amazon’s Advertising budgetary strategy to help guide our own annual advertising spend.
While we might not have $11 billion to spend on advertising, the ratios and percentages can be used as a guideline to help us align our advertising budget with our annual sales target.
As we can see from the chart above the percentage of revenue that Amazon allocates to Advertising ranges from between 3.2% – 3.9%.
Amazon is an established business and this percentage is generally higher for new businesses.
As an established business using this as a benchmark you should set your annual revenue targets and then allocate at least 3.2% – 3.9% of your annual revenue target towards advertising only. For example, if you are targeting $1m in revenue for 2021 then you need to allocate approximately $32-39k towards your advertising budget. There will be additional marketing expenses that are likely to raise this percentage somewhere between 5% – 10%.
If you’d like to find out how best to allocate your advertising budget across various media and how to get the best advertising options at the best price please complete a Request for Quote form here or contact email@example.com.