A few weeks ago, our blog covered different methods companies use to determine a marketing budget. We looked at several methods of determining one’s marketing budget—from the bottom up, based on a costed-out tactical plan, derived from historical marketing and sales costs per volume sold, against the competition, and as a percentage of revenue. This likely left you wondering what the general principle or recommended marketing & sales budget is for a company.
Many will cite 10% of annual revenue as the prevailing wisdom, but the truth is that the amount companies spend on marketing and sales varies greatly depending on their industry, service type, stage of growth, and competition, among other external factors.
Companies whose business models rely on a critical mass of subscribers, such as SaaS companies and social networks, spend huge to obtain members; LinkedIn spent 35% of revenues on sales and marketing in 2014. Other companies spend far less. Walmart with its massive scale spends only 0.4% of revenues on marketing and Target spends 2%. In the middle of these extremes, but still quite high on average, are companies like Microsoft, which spends 18% to 23% of revenue on marketing and sales annually. These are broad figures and not of much use to a B2B company in Calgary or Saskatoon. Let’s dig deeper and look at average across company types.
The CMO Survey is a semi-annual survey of companies conducted in partnership with Deloitte, the American Marketing Association, and The Fuqua School of Business. It polls over 3,000 marketers from top U.S. companies. The percentage of annual revenue that polled companies spent in Q3/Q4 of 2015 is listed in the table below.
|Type of Company||Marketing Spend %|
(CMO Survey February 2016: http://cmosurvey.org/files/2016/02/The_CMO_Survey-Highlights_and_Insights-Feb-2016.pdf)
B2B companies ostensibly spent less than B2C ones, but note that most respondents do not include sales employees’ salaries and commissions in the marketing budget (only 5.4% of B2B service companies and 11% of B2B product companies do), so the above figures for the most part reflect pure marketing and communications spending only. B2B companies have elaborate and extensive sales functions that require strong direct sales representatives whose salaries range from $100,000 to $300,000+ CAD. This is critically important in the oil & gas industry in Western Canada and the United States, where deals often go to the firmest handshake.
Based on these figures, for most B2B companies to be competitive with their peers they should spend at least 7% of annual revenue on marketing alone, including planning, digital marketing, brand upkeep and strategy, and advertising, among other marketing initiatives. A company that makes $100 MM annually should spend around $7,000,000 on marketing to be competitive. One that makes $6 MM annually, should spend at least $420,000 to be competitive.
These figures likely seem grossly exaggerated to many. From our experience, we agree. These figures are high. Few small to medium-sized companies we deal with (1,000 employees or less) spend this large of a percentage of gross revenue on marketing. Still, companies need to leave room in their budgets for marketing and should spend between 1% and 5% of gross revenue on marketing, depending on industry maturity, reputation, customer churn, and level of competition.
What percentage of annual revenue does your company spend on marketing? Let us know on LinkedIn or Twitter.