Tips on How to Build a Marketing Budget

Pie chart on a stock chart with a budget

You are in growth mode and you know that marketing is necessary, but how much should you spend? Taking it a step further, where do you find money for your marketing budget?

If you are like many of our clients, you may not have had dedicated marketing dollars for growth in the past, but instead the expenditure has been wrapped up with your field sales team. You might be thinking, “We’ve never spent this on marketing before,” after doing a budget plan or reviewing an agency proposal.

Let’s look at some industry standards for how to build a marketing budget.

How much should I spend on marketing?

For companies in growth mode, the traditional answer is that you should be spending 10% of your total revenue. For companies in maintenance mode, the marketing spend should be at least 5%. The higher the competition, the greater the spend should be.

But, this is an average. You need to consider your specific situation in the following areas.

  • Industry – You need to spend at a level that is comparable or greater than your competitors.
  • Competition – The greater the competition, the greater the spend you will need.
  • Maturity of product – Do you need to educate the market in addition to promoting your brand?
  • Business model – What role does marketing place in the sales cycle? What size sales team do you have and how important is marketing to finding leads or closing business?
  • Your market position – Do you have hurdles in perception or market share that you have to overcome?
  • Company size – For the largest and the smallest companies, a percentage of revenue is inappropriate, because of economies of scale (or the lack thereof).

How can I find money for my marketing budget?

Often times, using marketing to grow is not about spending more, but spending smarter. Most of our clients prior to working with us were spending money on marketing, but it was not being audited. In this video, Dacia discusses a few examples of where company’s can find the money to fund new marketing efforts.

What items should be included in your marketing budget?

Items to consider when doing a marketing budget plan

  • Marketing salaries
  • Media spend/Traditional Advertising (print ads through trade publications, radio, TV, etc.)
  • Agency/consulting/outsourcing costs
  • Design costs for branding and advertising
  • Website creation and management
  • Paid Digital advertising (Search marketing, Google ad words, paid social media ads, etc.)
  • Content marketing such as email, blogs, social media, etc.
  • Public Relations
  • Trade Shows
  • Print costs
  • Special events specific to you
  • Packaging (if applicable)
  • Point of Sale (if applicable)
  • Sales salaries are NOT a part of a marketing budget.

Sales salaries and commissions are not part of a marketing budget. For most of the B2B companies we work with, this is a significant point. Your marketing budget should be specific to the marketing and advertising of your offering and should help your sales team to find business and hit their number. Marketing and sales should work together, but they are not the same thing.

How do you benchmark the average marketing spend in your industry?

Knowing what is common practice in your industry, especially among the biggest players or your most intense competitors can really help you to understand what it will take to grow.

Here are a few great studies that will get you started:
The CMO Survey is a semi-annual survey of 3,000 U.S. marketers conducted by Deloitte, the American Marketing Association, and The Fuqua School of Business.

Here is the percentage of annual revenue that the polled companies spent in Q3/Q4 of 2015:

Type of Company Marketing Spend :

  • B2B Product = 6.9%
  • B2B Services = 8.6%
  • B2C Product = 9.5%
  • B2C Services = 10.4%

For larger businesses with revenues of $500 million or more, a Gartner study showed that these businesses spent on average 10.2% of their revenue with 50% of that dedicated to digital marketing. Their research found that manufacturing companies spent 10.6% of revenue on marketing.

Source: http://www.gartner.com/technology/research/digital-marketing/digital-marketing-spend-report.jsp

For mid-market companies. According to IDC, the average ratio for companies earning less than $250 million in revenue is 9.1 percent, and the weighted average is 6.4 percent.

Source: http://www.mo-cca.com/resources/Documents/IDC_MOCCA_Essential%20Guidance%20for%202014%20Planning.pdf

For small businesses with revenues of $5 million or less, the SBA offers great insights into these unique considerations and recommends an allocation of 7-8% assuming you have margins ibn the range of 10-12%.

Source:
https://www.sba.gov/blogs/how-set-marketing-budget-fits-your-business-goals-and-provides-high-return-investment

How to Build a Marketing Budget

While all of this intel is interesting, where do you go from here? This is what we recommend:

Clarify your growth goals. Write down specific examples of what success means to you. Use both quantitative and qualitative examples.

Audit your current marketing. How effectively does your advertising attract attention? How well does your brand convert interest into inquiry and clarify your differentiation? Where are the gaps in your sales cycle and how well does marketing support the sales team’s efforts? Are you measuring the success of your efforts?

Compare current spend to the areas of opportunity above and to the efforts of your competitors.
Set a plan. Encourage collaboration between your internal and external experts to develop a more balanced and unbiased strategy. Reverse engineer the budget based on this strategic plan, comparing it to industry averages, and scaling to your operational realities and the aggressiveness of your goals.

  • Execute masterfully.
  • Track to your goals.
  • Improve and repeat.

Marketing is proactive, not reactive. It is important to go through the process if you want to see results and growth. It may feel slow compared to the frenzy of marketing projects you are used to, but you won’t know if you activities are aligning with your goals without putting a budget and process in place.

If you have questions about implementing this in your company, give us a shout and let’s discuss how we can help.