How much should a company spend on IR and growing its market cap?

How much should you invest in investor relations and shareholder growth?

Understanding the right amount to allocate towards investor relations (IR) and enhancing shareholder growth can be a complex decision for many businesses. A frequently asked question in this area is: "How much money should be spent on IR and building shareholder growth?" While there's no one-size-fits-all answer, a commonly accepted guideline suggests spending about 1% of your market capitalisation. For a medium-sized company, this could mean around $450,000 annually.

A rule of thumb to guide your strategy.

It's vital to recognise that this 1% figure is not a strict rule, but rather a guiding principle to help shape your IR strategy. It offers a starting point to consider your objectives and the expected return on investment (ROI). Every business has its unique characteristics, and your specific requirements may differ, but this guideline is a useful way to initiate strategic discussions.

Balancing resources and objectives.

This benchmark aids in deciding whether to invest this budget in internal resources or external services. It's an important step in determining the need for dedicated IR staff or outsourcing specific tasks. Moreover, it provides a basis for evaluating the potential ROI on activities such as participating in investor conferences and allocating funds for media expenditure.

Understanding return on investment.

Measuring the success of your efforts in IR and shareholder growth isn't always clear-cut. Success here is relative. The focus should be on increasing the rate of acquiring new shareholders. Essentially, aim for an improvement in the pace at which you were previously adding shareholders. This approach serves as a practical measure of how effective your IR strategies and investments are.

InvestorHub increases the rate of new shareholder acquisition by an average of 33%, which should provide a good benchmark for comparison with other IR and investor marketing activities.

In conclusion.

Remember, the 1% is merely a starting point. The actual amount you decide to invest should be in line with your company’s unique goals, market position, and growth plans. Continuously reviewing and adjusting your IR budget, in light of these factors and changing market conditions, ensures that your investment remains effective and congruent with your broader business strategy.