What Do Marketing Costs Include? How to Calculate Them Effectively

To make sure your marketing delivers results, calculating a detailed and accurate marketing cost breakdown is a key step toward improving your company’s business performance.

With that in mind, The7 will walk you through exactly what marketing costs include, and how to save on them in an optimized way that brings in the most profit. Let’s dive in!

Marketing knowledge:

• What Is Marketing? The 13 Most Popular Types of Marketing in 2022
• What Is Integrated Marketing? Its Role and How to Plan It in 2022
• What Is Online Marketing? How to Advertise Online Effectively
• What Is Digital Marketing? 10 Popular Advertising Formats in 2022

1. What Are Marketing Costs?

A business that wants to expand its market and increase profitability will usually turn to marketing to gain a clear competitive edge over its rivals. Especially in an era of increasingly fierce market competition, most companies want to grow their marketing activities to strengthen their brand image. And to do marketing, you need a budget to keep it effective. From this, we can understand that marketing costs are all the money a business has to spend on its marketing activities.

A company’s marketing costs include expenses directly related to promoting its products, services or brand. Specifically, these expenses cover activities such as: advertising on platforms (Facebook, YouTube, Zalo, Shopee, Lazada, TikTok, etc.), organizing trade events, brand-building strategy, public relations, market research, producing marketing materials, press and media costs, KOL fees, salaries for the marketing team, commissions, and many other expenses depending on the goals of each marketing campaign.

To keep marketing costs low while still delivering strong results and profitability, the percentage of marketing spend relative to total revenue must be calculated carefully. This percentage also varies depending on the industry and the goals of the business.

>>> See more of The7’s marketing services:

2. How Much Should a Business Spend on Marketing?

For a business that wants to operate efficiently, balancing the marketing budget against other expenses is how you avoid waste. In addition, analyzing this spending clearly helps a business get a full view of its marketing activities: which products to push harder, which distribution channels bring in the most revenue, and which types of activity to expand, scale back or cut altogether.

We can use a rule of thumb to determine a business’s marketing budget. For consumer goods, spending 6 – 12% of total revenue on marketing is reasonable to recover your investment while still earning extra profit. For B2B businesses, spending 2 – 6% on marketing will help secure revenue.

In general, the share of spending on marketing also differs among consumer goods, industrial products, professional services and premium brands, etc. If a business is in the phase of promoting a product or service in a new market or introducing a new brand, its marketing cost ratio will be higher than usual, even reaching more than 20% of revenue.

However, according to many reports, most businesses spend around 5 – 6% of revenue on regular marketing activities, and many spend more than 6% when launching new products. Some premium brands spend even more heavily on marketing to boost their name recognition.

3. What Should a Marketing Cost Breakdown Include?

To build a reasonable marketing cost breakdown and make sure your budget fits your goals, a business needs to carefully calculate the following costs:

3.1 Marketing Costs for Personal Selling

The budget for the activities of salespeople who sell products directly to customers is called personal selling cost. Businesses should choose experienced professionals who already have the skills to build a professional sales operation. This cost includes:

• Recruiting salespeople.
• Salaries, bonuses and benefits for salespeople.
• Employee training fees.
• Producing advertising materials to support sales, and business cards for staff.
• Costs of developing sales scripts, etc.

3.2 Marketing Costs for Your Website and Digital Tools

With competition between platforms and media channels getting fiercer, marketing spend on search engines and social networks is seen as a strategy that “hooks” customers more effectively when used for the right purpose. Building and developing a website is also a way to help customers easily find your products and feel confident choosing your business’s products

So building and developing a website requires costs such as: website design, maintenance, rich website content creation, search engine optimization, website image design, customer management tools, etc.

3.3 Marketing Costs for Commissions and Agencies

If you don’t have much experience and don’t have your own marketing team, hiring a professional marketing company, also known as an agency, such as The7 is the most reasonable and effective solution. Agencies will help you calculate your marketing costs in the most reasonable and optimized way. On top of that, they have strong website platforms, digital tools that fully support marketing activities, and a team of highly experienced staff.

The cost of hiring a marketing company is usually based on the length of the campaign, or a percentage commission on ad spend, or on custom full-package services.

Whether you hire an agency, a marketing services company, or do the marketing yourself, you still need to budget for the following: printing and design of advertising signage, websites, press articles, TV, radio, magazines, commissions, etc.

3.4 Direct Marketing and Printing Costs

Although publications in media such as online newspapers, TV and social networks are gradually replacing direct publications, a sizable share of customers still prefer printed materials such as: coupons, promotional vouchers, menus presenting all products, flyers, postcards, advertising brochures, etc.

In addition, producing these materials means accounting for items such as: buying lists of potential customer data, hiring content writers and designers to create the materials, printing costs based on material and size, and shipping costs for the materials, etc.

3.5 Salaries for In-House Staff

If a business has its own marketing department, the payroll, bonuses and benefits for those employees also count toward marketing costs. This team may be large or small depending on the size of the business, but it usually includes roles such as: Marketing Manager, Content Writer, Designer, Video Editor, SEO Specialist, Facebook Ads Specialist, Social Media Manager, media collaborators, etc.

If you run a small business, you can hire freelancers to run campaigns for a short period, which saves capital while still delivering results.

3.6 Marketing Costs for Customer Behavior Research

Researching the market and customer behavior helps a business understand what customers need and like, so it can expand or narrow its scope of business sensibly. The budget for market research varies with the scale and type of research, and a business can also save money by researching data on the Internet and other sources such as press and demographics, etc.

Besides the costs above, a business sometimes needs to cover other expenses such as: sponsorship, consulting services, gifts and discount programs for customers, event organization, brand development, marketing support tools, etc.

4. How to Calculate Marketing Costs Effectively

Every business has a different size and different goals, so the marketing costs each one needs to spend on its marketing activities also differ. These costs are usually calculated in the following 4 ways:

4.1 Calculate Marketing Costs Based on Sales

Formula: Marketing cost = Sales x % advertising

Marketing costs are calculated as a percentage of sales, so marketing spend is directly proportional to revenue. Example: if expected revenue is 100 billion VND and the advertising budget is 5%, the marketing cost will be 5 billion VND.

Based on The7‘s experience, businesses can calculate their marketing spend from their annual sales. Specifically, if revenue is under 5 million dollars per year, the marketing budget should be 7 – 8%; if revenue is 10 – 100 million dollars per year, you can spend 5 – 6% on marketing; and if revenue is already above 300 million dollars per year, you can cut marketing costs to just 3 – 4% of revenue.

4.2 Calculate Marketing Costs Based on Specific Figures

A business can also base its decision on sales figures from past years and its current budget, compare against marketing budgets from previous years, and benchmark against competitors to find the right figure for this year.

When calculating your marketing cost breakdown this way, businesses should use Google Adwords and Facebook, since they store specific data by day, week, month and year. This makes it easier to compare and determine the budget that suits your business.

4.3 Calculate Marketing Costs Based on the CEO’s Expectations

If a business wants to increase its market share or grow sales by 100%, this naturally means raising the marketing budget to reach the target. The higher the expectations, the bigger the spend.

Steps to follow:

• Step 1: Define the business’s expectations based on capital, annual sales, the amount it can spend, the number of target customers it wants to reach, etc.
• Step 2: Set specific, numeric goals the business wants to achieve.
• Step 3: Calculate the marketing cost needed based on those goals and the other expenses required to achieve them.

In addition, looking into competitors’ budgets also helps a business define its goals and plan a more suitable budget.

5. The Most Optimized Ways to Save on Marketing Costs

Here are the ways to save on marketing costs most effectively while still ensuring results and maximum profit:

5.1 Step Up Content Marketing

A good message is one that is memorable and makes a strong impression on users. So the most effective way to save money is to use creativity in your content to spark curiosity, which then drives customers to use your company’s products or services.

5.2 Focus on Marketing Automation

Automation saves as much time and effort as possible to improve your operations while raising the quality of your business activities. Costs also drop thanks to software for managing campaigns, business operations, internal processes and customer data, and for analyzing customer behavior, etc.

5.3 Promote Your Brand Through Social Media (Social Marketing)

Social media is fertile ground that businesses cannot overlook when they want to save on marketing costs. Through social media, businesses can reach a large number of potential users, spread information quickly, and measure customers’ habits, behaviors and interests, etc.

5.4 Optimize Your Brand and Sales Website (SEO)

Search engine optimization to SEO standards brings your website closer to customers by making it easy to find at the top of Google. Customers then get more information on your site, which raises the rate at which they buy products or use services.

5.5 Promote Your Brand Through Email (Email Marketing)

Email marketing has long been used to build lasting relationships with customers and make a good impression through professional messages. It is a format that is both low-cost and able to reach a large number of customers.

5.6 Use a Remarketing Strategy

Remarketing increases brand awareness and attracts both customers who have shown interest in your products before and new users who have just learned about them. This approach saves on marketing costs while also persuading customers to buy.

5.7 Build Strong Brand Awareness (Brand Identity)

A brand with a name and solid credibility will certainly find it easier to sell than a new brand. So building strong brand awareness in customers’ minds is a simple way to save on marketing costs.

5.8 Pay Attention to Customer Data (CRM)

Focusing on customer management is also a way to reduce marketing costs. Customer information management software sorts customers into specific groups, making them easier to manage and their data more convenient to find.

5.9 Partner With Influencers (KOLs)

Today, using the influence of celebrities (KOLs) is a way for businesses to make the most of marketing resources, benefiting both sides. A business can save on costs and also get effective advertising in the market.

5.10 Build Your Brand Through Video (Video Marketing)

Most users find video more engaging than images. That is why video-supported platforms are now chosen by many businesses and have become a trend with high conversion rates. Create compelling video content that evokes empathy in order to increase engagement with users.

In addition, if your business doesn’t have a team for producing media videos, The7 can help you produce professional videos at a very reasonable cost, build a perfect story, run video ads, and handle every stage of marketing from A to Z to save as much cost as possible while still delivering strong results.

That is everything you need to know to build the most reasonable and effective marketing cost breakdown. If you need support, digital marketing agency The7 is always ready to provide full-package marketing services with top Digital Marketing experts in the industry. Choosing The7 ensures real value for your business, from planning to execution to measuring and reporting every marketing activity across all media channels, at an optimized cost.

Don’t hesitate to contact us when you need marketing services:

• Full-Package Marketing Services
• Digital Marketing Services
• Marketing Strategy Consulting Services
• Online Advertising Services