This question is often asked by two types of people; senior marketers, who want to use a numbers-driven pitch to create a compelling argument, and decision makers, who want to improve their bottom line. While this article will provide you with the hard numbers, I encourage you to read on to understand the factors you’ll need to take into account when deciding the percentage that’s right for your business.
Why a percentage rather than a dollar figure?
Marketing is often a cornerstone in any lead generation or sales strategy, and in many cases, the size of an organisation directly correlates with the number of leads or sales needed to turn a profit. By looking at your marketing budget through a percentage lens rather than a total dollar figure, you can ensure that you’re continuously spending the right amount to hit your targets.
And the average percentage is…
- In February 2021, Deloitte’s CMO Survey reported that marketing budgets were approximately 13.2% of total company revenue.
- Similarly, Gartner’s 2020 CMO Survey found that marketing budgets were around 11% of total company revenue (fluctuating between 10% and 12% between 2014 and 2020).
- The Deloitte CMO Survey 2021 also found that:
- B2B product companies had the lowest marketing spend as a percentage of their overall revenue at 10.0%, while B2C product companies had the highest at 18.6%.
- B2B service companies were investing 15.5% of their revenue into marketing, while this was 10.1% for B2C service companies.
- Not all industries had the same spending patterns. For example, education significantly outspent other industries, with marketing representing 19.4% of total budget.
The main takeaways from these surveys show that most businesses typically spend on average 10-13% of their revenue on marketing. However, averages can be dangerous if you don’t understand the data behind them. What data range is being used? Are most companies spending 10%, or is there a range from 5% to 15%?
It’s important not to rely on aggregated data to inform your organisation’s future sales and marketing budgets.
When is a standard range not a good guide for me?
While taking guidance from industry surveys can be helpful in some instances, there are times when the industry average spend will not apply to your business. For example:
- High-growth companies, by definition, generate more leads and sales than their smaller counterparts. This rapid growth is sometimes achieved by investing more heavily in marketing.
- If you come from a competitive industry, your marketing spend is likely to be higher than the average. If many companies in your industry invest well in marketing, you’ll need to be smart to succeed.
- Start-ups often attribute a much higher percentage of their revenue towards marketing to offset an unproven offering.
- If you are expanding your business into an area or market, you’ll likely need to invest more of your revenue into marketing.
- During challenging times (like the global pandemic we are currently living in), companies have the opportunity to invest in marketing to help grow their market share so they can reap the benefits when good times return.
How to easily increase or decrease your marketing budget
An in-house marketing team is an invaluable and effective resource that can help you get the best possible return from your marketing investment. However, if you don’t have the capacity to bring your marketing under one roof, an external agency can help your business to quickly adjust their marketing investment as revenue changes.
Why the size of your marketing spend matters
Marketing has the power to shape what the future of your business will look like. Today’s marketing is tomorrow’s revenue, and the size of your marketing spend will noticeably drive your business outcomes. Notable examples of marketing affecting business growth are:
- Apple, whose expensive product isn’t radically different from their competitors, but is still priced significantly higher;
- Amazon, whose continued growth has helped them dominate global markets across industries, and;
- Red Bull, who have aligned themselves with certain extreme sport events and have experienced tremendous growth as a result.
None of these companies follow the industry average for their marketing efforts. By creating above-average demand for their product, they were able to harness this to achieve huge business growth and incredible outcomes.
What will your business look like if your marketing capability creates more leads and sales than you need to hit your projected targets? Do you grow rapidly? Raise your costs? Focus on your ideal customers? Invest in the future?
Conversely, what will happen if you under-invest in marketing compared to your competitors? How would having fewer leads or sales than you need to achieve your goals affect your business?
This article originally appeared on Rocket Agency‘s website, and has been paraphrased here with permission. For the full article, click here.
David Lawrence is the co-founder and MD of multi-award winning Australian digital marketing agency, Rocket. Rocket was recently awarded Best Digital Services at the 2020 B&T Awards and Best Integrated Small Agency at the 2021 APAC Search Awards. David is also author of the Amazon Australia best-selling marketing book, Smarter Marketer. Smarter Marketer was inspired by David’s 20-year digital marketing career working with over 300 Australian businesses as well as growing three of his own.