Just came back from a client prospect meeting. My prospect shared his marketing budget with me, in absolute dollar figures. A nice amount, but perhaps not enough for him to reach his goals. Maybe sufficient for his organisation to professionally establish itself as a brand; but insufficient to grow it, in a quantum leap. While driving back to the office, mulled over the question:
What % of revenue
should organisations allocate
to marketing expenditure?
Two ways to answer this:
- Look at the organisation itself and its specific financial, market and competitive situation. Oh, and its goals!
- Look at benchmarks, and see what other companies do.
Marketing Investment as a % of Revenue – The Formula
Your marketing investment should be that % of revenue that your company needs to profitable grow the business and strengthen its competitiveness.
How Much Should Companies Spend on Digital Marketing? — The Analysis
How much a company needs to spend on digital marketing depends on these factors:
- Business age and size
- Special ‘events’, such as new product launches, and related plans for growth
- Customer buying behaviour
- Market competitiveness, and
- Overall company margins. (Why margins? As marketing spending comes before the revenue will come in, it’s constrained by affordability.
So, to set the appropriate marketing budget, it is important for organisations to work with precise sales and growth targets.
Marketing Investment Benchmarks
I conclude that in 2021 organisations should spend about 7-12% of revenue on marketing, and up to 80% of that on digital marketing, and about 1/3 of this on marketing technology. I base this on my review of a number of industry studies to analyse how much you should spend on your marketing.
I started this research in 2014, with 6 different sources. Today’s findings are based on the two most reputable works, the Gartner annual CMO Spend Survey of 600 marketing leaders in N. America & the UK; and The CMO Survey, an independent research by the World Market Watch llc, sponsored by the American Marketing Association a.o.
What did I find?
Marketing Expenditure as % of Revenue
- Gartner’s “CMO Spend Survey 2020-2021” survey found that in early 2020, CMOs expected that an averaged 11% of revenue would be spent on marketing, although later in the year, many found marketing initiatives postponed, 34% had to furlough staff and 65% imposed hiring freezes in face of the pandemic and the collapse of certain industries. However, despite that somber forecast, marketers were looking to technology as a bright spot.
- Technology currently accounts for the largest proportion of marketing budgets (26.2%), and 68% expected their already-significant outlays to increase in the next 12 months, i.e. CMOs remained bullish about technology for their next 12 months. Technology investments are aligned with marketers’ focus on customer retention and growth, away from new customer acquisition.
- 62% of CMOs expect total media spend to bounce back in 2021.
vs. our findings in previous years:
- Gartner’s “CMO Spend Survey 2018-2019” survey found that year-over-year, Marketing budgets had remained at a steady average of 11.2% of company revenue. The largest companies amongst them spent the most on marketing, i.e. 11.6% of revenue. In the 2014 Gartner study: “Companies spent on average 10.2% of 2014 revenue on overall marketing, with 50% of companies planning to increase to an average of 10.4%” in 2015. So, over the last 5 years, it has gone up by just 1%. (Gartner Survey 2018-19)
- “The CMO Survey” (August 2018), indicated that, on average, Marketing spend is 7.3% of company Revenues. (It ranged 6.6 – 9.3% over the last 5 years.)
- The marketing expenditure % varies significantly by sector: B2C Product companies allocate considerably more to their marketing budgets as a percentage of total budget (17.2%), compared to B2C Service (11.6%), B2B Product (8.5%), and B2B Service (9.6%) companies. (CMO 2018 Survey results)
Over the years, Gartner’s study results have been approximately 3% higher than The CMO Survey.
- This can be partly explained by Gartner embracing all of North America and the UK, while the other study covering US only.
- The other explanation might be differences company size. 86% of the respondents in the Gartner 2018/2019 study work for organisations with $1B+ annual revenue, while in The CMO Survey from Feb 2019, it’s only 33.5% of respondents whose company is of this size.
Rising Digital Marketing & Marketing Technology Investments
Over the last 5 years, as digital marketing and overall marketing are morphing and merging, the digital marketing percentage has also been steadily rising. While this is based on what I see in the industry overall, the study results to support this:
- 2021: Now gone digital. Since the pandemic, consumers have been online for information, entertainment and connection, and that trend will continue. Digital channels account for almost 80% of budgets in 2020. Compare that to “The CMO Survey” of August 2018 when companies expected to spend 54% of marketing budgets on digital.
- The latest Gartner report indicated that “Marketing Technology (martech) gets 1/3 of marketing’s budget.”
- The 2018/2019 Study by Gartner also found that ‘Marketing technology will get the lion-share of investment, but lower investment in talent puts the ability to leverage the tools at risk.’
Covid 19 Impact
I think this chart on how marketers responded to Covid-19 is also interesting. Most launched special customer communication and listening tools to learn both sentiments and trends. And 40% promoted e-commerce offerings, although the survey does not indicate if these e-commerce offers were already available prior to Covid.
But many also postponed investment, initiatives and events, and moved marketing resources in-house for more control.
How to Maximize Marketing ROI
To ensure the highest ROI from your marketing investment, you need a marketing plan, and proper analytics in place to measure & optimise the success of your campaigns, events and initiatives.
Digital marketeers have it easier than their brand marketing counterparts, as they can quantify and proof the ROI of every marketing dollar spent. Unlike sales, marketing ROI isn’t always imminent and immediate, so a reasonable timeframe, say a year, must be applied.
Digital marketing analytics tools like Pardot, Marketing Cloud Social Studio, Email Studio or Advertising Studio, Journey Builder as well as other interesting technologies like TrenDemon can help digital marketeers determine and enhance the ROI of their content marketing, social media marketing and marketing automation.
B2B Companies’ Marketing Expenditure Allocation
Here’s where their marketing funds go:
Figures versus Objectives
While all these figures are nice averages and possibly useful indications, companies should not underestimate the importance of their company goals when setting their sales and marketing budgets. Yes, even B2B companies can be ‘marketing’ or ‘brand building’ companies.
Take Salesforce for example. Here’s one of the fastest growing companies in the world. They spend about 50% of revenue on sales and an additional 25% on marketing. The rest is product development, engineering, management, etc. It takes little brainpower to deduct that their dedication to sales and marketing is what keeping this company’s on its track of massive growth year-over-year.
Now that we are further in 2021, with a wild Covid year and a half behind us, we we saw marketers move swiftly from responding to the crisis to recovering today. Facing the future, as they are continuing to recover, companies should start shifting their focus on renewing themselves instead, with a fresh new outlook for the future.
Your Marketing Expenditure
Like to discuss what % of revenue would be reasonable for you to spend now? And how best to spend on marketing technology today? Book us for a free consultation.