How Much Should a Business Spend on a Marketing Agency?

Vu Khoi

Author at Wotech Electronics Blog

Marketing agencies are becoming increasingly common in the marketing and advertising industry, because every business needs marketing in order to compete better against rivals, attract more customers, and grow revenue. Even so, not every business owner knows what percentage of their available budget they should spend on advertising — or, more precisely, on marketing agencies. Let's find the answer with Markdao Vietnam in this article!

Solving the marketing agency budget puzzle

Whether you own a billion-dollar enterprise or a freshly founded start-up, we cannot deny the power and importance of advertising and marketing. How much money to spend on marketing is a question many business owners care deeply about — especially companies that have decided to outsource a marketing agency to take responsibility for everything marketing-related.

Jessica Horvath, a business advisor at the Business Development Bank of Canada, notes that there is no one-size-fits-all answer. Many factors affect how much a business can set aside for a marketing agency: type of business, market conditions, marketing goals, desired sales, and so on. In this article, we offer a 4-step guide to setting a marketing budget.

Market research — the first step when working with a marketing agency

According to most experts, a business's budget for a marketing agency should be calculated based on that business's revenue. Typically, B2B companies are advised to dedicate 2% to 5% of revenue to marketing activities. For B2C companies, the ratio is usually higher: 5% to 10%. The reasoning is that B2C companies usually need to invest in more marketing channels in order to reach a wider range of customer segments.

Benchmarking competitors is essential when deciding to hire a marketing agency

The most common — and also considered the best — way to pin down the exact budget to spend on a marketing agency is to study what is happening in your industry. Finding out how much your competitors are spending on advertising and marketing is the fastest, most practical way to determine the right figure. But don't forget to factor in your own company's size relative to your competitors. Compared with small businesses with fewer than 20 employees, mid-sized companies of about 20–50 employees spend twice as much on marketing, while companies with 50 or more employees spend three times as much. The larger the company, the larger the advertising budget.

Tell your marketing agency the goals you want to achieve

Clarity in marketing goals is extremely important for both the business itself and the marketing agency. Clear goals help you control what needs to be done and decide to invest in the right channels. From there, you and the agency can determine the marketing strategies that are the most correct, most economical, and most effective.

• How many users do you want to attract through each marketing channel?

• What is the timeframe for each campaign?

• What is the purpose of each marketing campaign?

• Do you want to increase sales or brand awareness?

• Which customer groups do you want to target?

• What do you want users to do next after seeing your ad?

Consider your own advantages and strengths so the marketing agency works more effectively

Besides the budget dedicated to advertising activities, the management fee paid to the marketing agency is also part of your calculation. Not every agency charges management fees the same way. With large, reputable agencies, the cost of hiring them is naturally higher than smaller agencies, but in return the success rate of advertising campaigns is more assured. However, you don't always need to work with big agencies. If you only need marketing for a narrow segment — say, just website SEO — consider agencies that specialize in that area. An agency's specialization benefits the business in this case, saving money while guaranteeing the quality of the work. When you list your goals, desires, strengths, and capabilities, you can see your business's current situation clearly and proceed to plan and balance the budget to be paid to the parties involved.

Factor in additional costs so the marketing agency works more effectively

Marketing costs, like any other budget category, should be broken down into as many small, detailed line items as possible. Experts advise allocating your budget by time period or by marketing channel. Period by period, you can compare the effectiveness of the marketing agency's work. So what are the most popular marketing channels today?

Website and social media — the channels most favored by marketing agencies

The website is currently one of the most popular online marketing channels. Marketing costs through the website channel include initial website design costs, the cost of managing marketing activities on the site (SEO, product information updates, online customer communication, etc.), monthly hosting and domain costs, annual website maintenance costs, and more.

Social media is the arena currently showing the strongest advantage, targeted by nearly every marketing agency in the advertising world of this 4.0 era. Social platforms that attract large user bases — Facebook, LinkedIn, Instagram, and so on — are always considered a favorable and full-of-potential environment for businesses to find and reach new customers.

Organic or paid traffic — the hard question for a marketing agency?

In contrast to marketing aimed at organic traffic, paid advertising is a way of delivering large volumes of traffic to a business in a short time. With paid ads, if you track and update regularly, you can budget more accurately for future plans.

Do marketing agencies still use traditional advertising?

While digital advertising (digital marketing) proves more "friendly" to a business's wallet, traditional advertising (through radio, TV, and print publications) still has value and delivers certain results for some products, services, and the businesses providing them — especially B2C businesses. So don't hesitate to discuss with the marketing agency you work with whether this advertising option would be effective for your business.

Video is a media product that can be used in both digital and traditional advertising. Most businesses are advised to use video because it is far more effective and intuitive than posters. However, this advertising product is naturally also more expensive.

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