November 2, 2017

Marketing Budget: How Much Should You Spend on Marketing?

November 2, 2017

Marketing Budget: How Much Should You Spend on Marketing?

Business Strategy, Marketing Strategy

In the never-ending conversation regarding marketing budgets, you may be tempted to look for ways to cut corners. Reducing or maintaining your marketing budget heading into the next fiscal year could have a more substantial impact on your company’s growth than you realise.

Before finalising your marketing budget, you need to conduct a review of your marketing analytics.

Data will give you an objective, factual report of where your marketing efforts are working and where they need to improve.

It’s important to know that your target audience saw and responded to your message before determining how much to spend on future marketing endeavours. With data in hand, you can now structure your marketing budget to support your company’s goals for growth as well as segment expenses. 

Looking inward is essential, but you cannot overlook comparing your direct competition. Consider where your company earnings are and what next year’s goals for revenue look like. You also need to think about the marketing avenues that are working the hardest for you.

Recommended reading:  The B2B Marketer’s Guide to Marketing ROI Benchmarks

 

Consider the Competition

According to the Gartner 20162017 CMO Spend Survey, marketing budgets have increased three years in a row.

This growing trend might seem like it gives marketers the freedom to expand advertising avenues, but the reality may be an increase only allows your business to maintain competitiveness within your industry.

According to the Wall Street Journal,

“Allocations within the marketing budget vary from company to company. For example, less than half (47.9 percent) of companies include expenses for marketing employees in their marketing budgets. Other companies may put marketing employee expenses into general and administrative expenses, sales, or other areas.”

This is where starting with the end goal in mind to establish a marketing budget is essential.

As a rule of thumb, businesses who allocate less than 7% of their turnover for marketing decline earnings. Around 710% of turnover invested in marketing will support your company earnings, staying the same. Growth requires a budget allocation of 10% or more.

Growth percentages vary the most. SYNX reports that,

  • Salesforce invests 53% of their $4.1 billion revenue into sales and marketing
  • Email marketing company Constant Contact invested 38% of their $331 million revenue into sales and marketing, which resulted in growth of 16%
  • Marketo, a marketing automation software company, spent about 67% of their $98 million revenue and achieved a whopping 56% revenue growth year-over-year
  • Microsoft invested 18% of their $51.8 billion revenue in sales and marketing in 2014, which led to 12% revenue growth
  • Intel invested 15% of their $8 billion revenue and lead to a growth of 6%
  • Apple invested 7% of their $11.9 billion revenue, which lead to a growth of 7%
  • Google invested 12% of their $8.1 billion revenue, which lead to a growth of 19%

A company with an ambitious marketing budget is likely looking at a short-term investment for dramatic revenue increase followed by a year or more of marketing budgets within the maintenance percentages.

The CMO survey presents breakdowns of percentages spent by industry each year. This survey is a great place to begin your research to stay competitive within your industry’s average expenses. It’s important to note that a specific percentage spent does not determine a particular growth percentage.

 

Get Your Data in Order

You’ve spent the last year sending your message out into the world, but how do you know the right people receive it?

When you take the time to review your marketing analytics across all advertising channels, a clear picture of successful past investments emerges.

As you go through your data reports, you need to be able to answer the following questions for each marketing channel you utilised:

  • Did our advertisements reach our intended audiences?
  • Once we reached our target audience, did they respond to our call to action?
  • What percentage of new clients did our marketing efforts obtain?
  • What percentage of clients did we retain through marketing efforts?

You need to distinguish the ROI of individual marketing channel expenses. This information will help you structure a plan moving forward to maximise costs in the areas where your marketing efforts are successful.

An excellent data analysis will reveal both areas of success and weakness. You may see that your company has increased reach for less expense on a nontraditional social media channel for your industry. These areas should specifically be noted.

 

Target Your Expenses

With your data in hand and a clear idea of the goals for business growth in the next year, the next question to answer is, “How should marketing funds be distributed?”

Gartner breaks down average expenses:

  • Marketers spent 9% of their budgets on websites, the most out of 14 spend categories surveyed
  • Spend on digital commerce accounted for 8% of the marketing budget (second-highest category) 
  • Two out of three marketing leaders plan to increase spending on digital advertising in 2017

Targeting advertising dollars needs to be determined by each marketing agency or company marketer.

Entrepreneur Mitchell Harper points out, “Marketing where your competitors do is expensive, especially if they’ve raised a bunch of money.” He suggests, “You need to invest in marketing where your competitors aren’t, or where they won’t even think to go.”

At Step Change, we provide clients and other marketers with a framework that helps make for a highly effective marketing. It serves as a guide as to where to focus their efforts to gain the best results. Its called RAMM: result, audience, message, and medium. Below are the questions you need to ask yourself within each area of the framework.

  • Result. What’s your marketing objective, the result you’re after? 
  • Audience. What’s the fewest number of people do you need to speak to in order to gain great results? Most business owners think they need to reach out to everyone. You want to speak to fewer people and be more engaged with them.
  • Message. Think about why potential customers would want to buy from you. What would trigger them to think about your product?
  • Medium. Lastly, decide what would be the best channels to get your message across.
    • Do you have an owned media that you can leverage? What are the assets that you have complete control over? (e.g. storefront, website, blog, office, etc.)
    • Do you have an earned media, something you gained as a result of doing something else? (e.g. PR, reviews, recommendations from happy customers, etc.).
    • Lastly, consider doing paid media (e.g. paid advertising on social media, pay-per-click, remarketing)

Read next: The B2B Marketer’s Guide to Marketing ROI Benchmarks

 

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