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What Percentage of Your Revenue Should Go Into Marketing?

by David Lawrence on 
August 12, 2021 | 
Digital Marketing Strategy

There are two types of people who ask this question.

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.

Why a percentage rather than a dollar figure?

Marketing is the engine that generates the future leads or sales for your business. Typically, the larger you are in terms of total revenue, the more leads or sales you’ll need to generate a profit. 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.

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. Between 2014 and 2020 this survey reported relatively stable results, fluctuating between 10% and 12%.
  • 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%.
    • B2C product companies had the highest at 18.6%.
    • B2B Service companies were investing 15.5% of their revenue into marketing
    • B2C Service companies were investing 10.1% of their revenue into marketing
    • Not all industries had the same spending patterns. For example, education significantly outspent other industries, with marketing representing 19.4% of total budget.

There are some takeaways here.

Typically, businesses spend on average 10-13% of their revenue on marketing. This is consistent with guidelines from economists and other advisors.

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.

When is a standard range not a good guide for me?

There are a number of scenarios when the average percentage of revenue spent on marketing is of little relevance to your business.

  • A high-growth company will operate outside of typical industry averages for marketing spend. By definition fast-growth companies generate more leads and sales and turn these into more revenue than the competition. This is typically achieved through investing heavily (and effectively) in marketing.
  • A company in a highly competitive industry is also likely to spend significantly above the sorts of averages above. If you’re fighting for business with a number of companies who invest well in marketing, expect to have to beat them at their own game if you want to succeed.
  • A start-up is likely to require a much higher percentage of revenue for marketing. When you have an unproven offering and little or no revenue, the absolute priority tends to be attracting as much interest and revenue as possible.
  • A company in a state of significant change is also likely to spend higher than the industry average would suggest. For example, when your business is launching a new product or service or entering a new location or market you’ll likely need to invest more of your revenue into marketing.
  • 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!

How to easily increase or decrease your marketing budget

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, 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.

Why the size of your marketing spend matters

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.

Note:

Review your databse of prospects and contacts. How extensive is it? Do you currently invest money in maintaining and growing this list? How eaily can you send segmented emails? Or see, at a glance, every interaction a contact as had with your marketing campaigns and salespeople? If your CRM technology does not allow you to take the actions outlined in this section, it's time to investigate the right options for your business.

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?

If you’re interested in speaking to a team who can help scale your marketing investment as needed to reach your business goals then get in touch. We always love to have a chat and can be reached on 1300 059 620 or by contacting us here.

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