Breaking down marketing budgets for cannabis companies

Before we start discussing how to successfully break down a marketing budget, we need to get into how to best allocate funds for marketing. If your business is pulling a number that isn’t tied to revenue towards marketing, the math is never going to work.

Why budgeting as a percentage of revenue matters

The number one reason you should be allocating budget as a percentage of revenue, is that this ensures your investment scales with the performance of the business. Your revenue numbers fluctuate quarter by quarter and year by year, so if your company has a static dollar amount allocated for marketing, you should be asking what is justifying that metric.

• Keep your growth proportional: if revenue rises but marketing spend stays flat, your brand awareness shrinks relative to your competitors. In fact, research from Deloitte shows that companies who invest 10-20% more than their peers in marketing will grow 2.5x faster.

• Prevent underfunding: according to Harvard Business Review, businesses that cut their marketing budgets during points of downturn lost 15-25% of market share versus businesses who maintained or increased their investment during the same time.

• Support ROI tracking: a percentage target aligns marketing with financial KPIs, allowing for easier board-level justification.

What percentage of revenue should be allocated for marketing?

Marketing isn’t one size fits all, but based on data available, we can look at benchmarks for different business case scenarios and companies.

Overall marketing budget benchmarks

• On average, B2C companies spend 5-10% of revenue on marketing.

• Startups or businesses in competitive markets typically spend 10-20% of revenue on marketing in order to establish brand awareness.

• In general, 5% of revenue is a good budget to maintain market share and see small growth; 10% of revenue is a good budget to grow market share.

Cannabis industry marketing budget benchmarks

• Average retail budget is 3-8% of revenue; independent shops spend closer to 10% to compete.

• Average marketing budgets for producers and brands is 8-15% of revenue; in more competitive markets (Canada, California) budgets are 15-20%.

• Ancillary services in cannabis typically spend closer to CPG norms at 5-10%. 

Why do cannabis budgets need to be higher?

The stakes are higher in cannabis (pun intended), because the environment and strategies are totally different from other industries.

• In competitive markets where there are a lot of products (and similar ones) to choose from, a strong brand is an important differentiator.

• Regulations and restrictions online limit traditional awareness tactics like paid social media, forcing more investment in things like retail displays, education and events.

• For producers and brands, shelves are crowded! You need to invest more in brand design, merchandising, retail assets and marketing.

• In mature markets, customer loyalty is lower and things like price wars and saturation will force increased promotional spend.

How to allocate your marketing budget

Based on the model of creating a marketing budget based off percentage of revenue (hopefully I’ve convinced you enough already), below is a breakdown of suggested spending by category.

• Trade marketing = 30%: most cannabis purchases are still made in-store and budtender recommendations remain a strong driver of sales, so in-store assets are important. The largest part of your marketing budget should be going to merchandising displays, in-store signage, retailer promotions and education. I would argue that producers need to invest even higher in this area.

• ·Digital marketing = 25%: paid social opportunities are limited but organic social media helps build trust and is a customer service avenue. Email and SMS marketing yield high engagement rates and SEO is always important!

• Branding and packaging = 20%: strict policies on social platforms and stringent regulations in Canada and parts of the US make branding a huge priority. Even where packaging regulations are sticky (Canada), invest in opportunities that will allow your package to stand out on shelves because this the way retailers are winning—with product on the floor. Brand loyalty and differentiation is everything—don’t skimp on this one.

• Events and activations = 12.5%: Brand loyalty is based on trust, and events allow you to build credibility and provide stand-out experiences people will talk about. Events also allow for unique opportunities to educate both B2C and B2B.

• Influencers and creative partnerships = 7.5%: with mainstream advertising options off the table in many jurisdictions, you can drive higher engagement with micro-influencers or through strategic partnerships where you can elevate your brand to your targeted market.

• Research and analytics = 5%: make sure you are always tracking and analyzing everything you do in marketing, so you know where things are working and where they are not. Market research is important in truly understanding your customers, especially where publicly available industry data is lacking in many categories. Leverage data and establish your key opportunities to level-up your efforts.

Cannabis companies should commit 8–15% of revenue (established) or 10–20% (growth phase) to marketing. Allocating budgets across trade marketing, packaging, digital, events and analytics ensures spend is directed where it overcomes regulatory challenges and moves product. Underspending risks getting lost in a commoditized market — overspending without structure risks wasted dollars.

If you are interested in learning more about how to elevate your cannabis marketing through online education opportunities, check out my online courses. If you want to chat about how I can help you dive into your current budget and help you craft strategic opportunities for growth, please get in touch.