The first are senior marketers making a pitch for why their marketing budget needs to be increased. They know decision-makers are typically numbers driven and want to present them with a compelling argument.
Then there are the decision-makers themselves. Often, they look at marketing as a somewhat intangible expense they’d love to reduce to improve the bottom line. Being able to prove they’re spending too much seems like a great place to start.
First off, I’m going to give you the numbers you seek. But read on, it’s critically important to understand that there are some factors you need to take into account when deciding the percentage that’s right for your business.
Marketing is the engine that generates future leads or sales for your business. Even more importantly, marketing is the activity that creates future revenue.
Typically, the larger you are in terms of total revenue, the more leads or sales you’ll need to generate a profit. As you grow, you’ll need more leads or sales than you did previously. By setting your marketing budget as a percentage of your overall revenue, you can ensure that all other things being equal, you’re always spending the correct amount needed to hit your targets.
There are some takeaways here.
In recent history, businesses spend on average 10-13% of their revenue on marketing. This is consistent with guidelines from economists and other advisors. In many cases, current spends have not yet recovered to pre-COVID levels.
However, averages can be very misleading if you don’t understand the underlying data. Are most companies spending 10%? Or is there a mix of 5% and 15% spends and everything else in between?
I urge you not to simply plug in the numbers above and decide whether you’re doing a good, or a bad job for the future sales of your business.
There are a number of scenarios when the average percentage of revenue spent on marketing is of little relevance to your business.
During challenging times, such as a recession or a global pandemic, smart companies have an opportunity to invest in marketing to help grow their market share so they can reap the benefits when good times return. We literally wrote the book on marketing during a recession!
The vast majority of our clients have excellent people employed full-time to work on their marketing and we’re firm believers that an effective in-house marketing team is a crucial part of getting the best return from your marketing investment.
For the most part, agencies like Rocket are used to fill gaps in strategy or specific areas (such as SEO services in Australia, PPC or Paid Social ads) for in-house marketing teams.
However, an agency can also be an excellent way to allow a business to quickly scale up (or down) their marketing investment as revenue changes.
There are plenty of decision-makers who think of marketing as no different to rent, cleaning or electricity. They understand it’s necessary and even useful, but to them, the less you can spend on it without noticing anything going wrong, the better.
For most businesses though, marketing plays a crucial role in shaping what the future will look like. Today’s marketing is tomorrow’s revenue. Investing in marketing to truly drive business outcomes is what all great companies understand and work tirelessly to execute on.
Great marketing is why Apple can charge exorbitant amounts of money for products that are not all that different to their competitors.
It’s why Amazon has been able to grow year after year and dominate global markets across numerous categories.
It’s why companies like GoPro and RedBull have become synonymous with certain sports and have experienced incredible growth as a result.
None of these companies settled for the industry average when it came to setting their marketing budget. They all set out with a plan to create above average demand for their product and to harness this demand to achieve incredible outcomes.
The question for you is, what does your business look like if your marketing engine is able to create more leads or sales than you need to hit this year’s targets? Do you grow at a faster than expected rate? Increase prices? Get more focussed on working with your perfect customers? Plough excess profits into investing in the future?
Conversely, what happens if you under-invest in marketing relative to your competitors or your specific situation? What would having fewer leads or sales than you need to achieve your goals mean to your business this year?
David Lawrence is the MD and Co-Founder of Rocket, an award-winning Australian digital marketing agency. He is also the co-author of the Amazon #1 best-selling marketing book 'Smarter Marketer'. David has presented at several events including Inbound, Search Marketing Summit, Mumbrella360, CEO Institute and a variety of seminars and in-house sessions.
David has built his expertise from a diverse career, starting with an economics degree before jumping into all things web in the late 90s.
Today, David is Rocket's Managing Director and is known for his ability to find clarity in the bigger picture. He is highly respected as a digital marketing authority, sharing his expertise with an extensive network here in Australia and around the world.