How Much Should You Spend on Marketing?
It’s one thing to realize the importance of a continuous, dedicated marketing strategy, but it’s another thing entirely to put your money where your mouth is. For companies that have been handling their own marketing rather than hiring a professional agency, sticker shock is not uncommon when it comes to marketing budgets, so companies end up under-spending and not seeing any useful returns. When you’re building a marketing budget, there are a few things to consider.
The Ten Percent Rule
The ten percent rule is what it sounds like — most companies spend somewhere in the area of ten percent of their revenue on marketing. Of course, that number varies quite a lot between industries and even between companies, but ten percent is an excellent place to start.
If you’re trying to get started with marketing for the first time or you’re shopping around for an agency, keep that number in mind.
Where Your Company Stands
The next thing to consider is that your marketing spend will change whether you’re just starting out, trying to shoulder your way into a crowded industry, or setting a new course in a space that hasn’t been established yet.
In general, you’ll have to try a lot harder to get noticed than to stay noticed. Once you’ve started to achieve some recognition in your industry as an expert and a leading option in your field, you can start looking at strategic areas of marketing spend beyond brand awareness.
Don’t get caught napping, though. If your competitor launches a new product and ramps up marketing spend accordingly, you’ll have to do the same to stay at the top of people’s minds. If a newcomer to your industry starts making waves, you’ll need to respond. And if you change something about your product, launch a new product, or run a promotion, you’ll have to market specifically for that — and budget accordingly.
Level of Competition
A big part of deciding your marketing budget will come down to the level of competition in your industry — both the number of competitors and their scale. Obviously, in some sectors, there are juggernauts. If you’re in the business of enterprise computer software, there’s no point in trying to out-spend Microsoft.
But other industries are flooded with competitors that are of a similar size to you, sell a similar product at a similar price point, and target similar people. If that’s the case, your marketing budget will have to be higher to avoid being drowned out in the crowd.
According to The CMO Survey, consumer packaged goods (food, beverages, cleaning products, cosmetics, etc.) spend the most on marketing — nearly a quarter of their revenue — due to the enormous amount of competition and relatively low differentiation in that space.
At the other end of the spectrum are industries like transportation, energy, and manufacturing. Those industries tend to be dominated by a few big players and aren’t as consumer-facing, so the need for flashy ad campaigns is significantly reduced. A company like Caterpillar can spend its entire marketing budget on a few major campaigns and trade shows and reach everyone it needs to.
Return on Investment
Finally, your marketing budget will depend on an obvious factor — how well it’s actually working! If you put $1,000 into a social media campaign and make $5,000 in sales back, why limit yourself? Spend twice as much to reach twice as many people and make even more back.
Of course, the ROI of your marketing efforts isn’t usually that cut-and-dried. Different channels will generate different returns, and returns will fluctuate over time. You’ll also hit a ceiling with any marketing effort, after which pouring more money into it won’t necessarily help you bring in more revenue in return.
But the simple lesson is that if your marketing is working, keep spending! You’ll more than make your money back, and you’ll be growing your business in the meantime. Salesforce spends almost 50 percent of its revenue on marketing, but it’s working — at the time of this writing, they’ve grown from around 10 percent market share to nearly 20 percent in just four years. In other words: if it’s not broken, don’t fix it.