We recently had a newly launched company that asked us to provide a statement of work (SOW) that incorporated building and executing a strategy for high growth. We did quite a bit of analysis on their system, their competition, and their pricing, in order to set some expectations for their marketing budget and its allocation.
After preliminary research, we brought some concerns back to the company that their revenue per lead was going to be difficult, if not possible, to cover the marketing budget it would require to grow the company at a consistent rate. In other words, even with an effective marketing strategy, it was doubtful that they could fuel growth without an investment well outside of their operating revenue.
This was well-received by the company who affirmed our concerns and said they were prepared for the investment as long as they could hit their growth numbers. With both of our organizations satisfied, we moved forward with an SOW. Had we not done this, we were fairly certain that we would lose the client as they watched their operating expenses rise with their revenue… but wouldn’t realize an immediate return on the marketing investment (ROMI).
Methods for Developing a Marketing Budget
Companies determine their total marketing budget by considering various factors, such as their business objectives, market conditions, competition, industry standards, and growth expectations. While there isn’t a one-size-fits-all approach, several common methods can help companies allocate marketing budgets as a percentage of revenue:
- Percentage of Sales: This method involves allocating a fixed percentage of past or projected sales revenue to the marketing budget. The percentage can vary depending on the industry, company size, and growth stage.
- Objective and Task-Based: This method involves defining specific marketing objectives and tasks required to achieve those objectives. The company then estimates the costs associated with completing each task and sums them up to determine the total marketing budget. This method allows for a more targeted approach, ensuring that the marketing budget is aligned with the company’s strategic goals.
- Competitive Parity: This approach involves benchmarking the marketing budget against competitors’ spending. Companies analyze their competitors’ marketing spend and allocate a similar budget to maintain or gain a competitive edge. This method assumes that competitors have already optimized their marketing spend, which may not always be accurate.
- Incremental Allocation: Companies using this method adjust their marketing budget based on the previous year’s spending, taking into account factors such as market conditions, company performance, and growth expectations. The budget can be increased or decreased by a fixed percentage or an amount based on these factors.
- Zero-Based Budgeting: This method involves building the marketing budget from scratch every year, without considering past budgets. Companies assess each marketing activity and allocate funds based on their potential return on investment (ROI). This approach encourages efficiency and ensures that each marketing activity is justified.
While these methods can help determine marketing budgets, it’s essential to consider the company’s unique circumstances and goals. There are some common mistakes that marketers make when determining their marketing budget. Industry standards can serve as a useful reference, but companies should also take into account factors such as their growth stage, market position, and competition when determining their marketing budget. Regularly reviewing and adjusting the marketing budget based on the company’s performance and market conditions is crucial to ensure its effectiveness.
How Much Is An Average Marketing Budget?
Various studies and reports have explored average marketing budgets for companies. While these numbers can vary based on factors such as industry, company size, and growth stage, here are some references to help provide a general understanding:
- Gartner’s CMO Spend Survey: Gartner’s annual CMO Spend Survey is a widely-cited source for marketing budget data. According to their 2020-2021 survey, marketing budgets made up 11% of overall company revenue on average. This survey included data from 400 marketing executives across various industries in North America, the UK, France, and Germany.
- Deloitte’s CMO Survey: The CMO Survey, sponsored by Deloitte, is another comprehensive source of marketing budget data. In their February 2021 survey, they reported that marketing budgets accounted for an average of 11.7% of overall company budgets, with B2C companies spending a higher percentage (13.4%) than B2B companies (10.1%).
- Forrester Research: Forrester Research provides insights into marketing budgets across industries. According to their 2019 US Marketing Budgets report, marketing budgets accounted for an average of 10.2% of overall company revenue. They also highlighted that technology and consumer product companies tended to allocate a higher percentage of revenue to marketing.
For established businesses, a marketing budget typically ranges between 5-15% of the company’s total revenue. However, startups and businesses in highly competitive markets may allocate a higher percentage (up to 20% or more) to gain market share and establish their brand. There is an exception in Software as a Service (SaaS) companies, which spend quite a bit more on sales and marketing.
It’s important to remember that these are general figures, and marketing budgets can vary significantly based on economic and individual company factors. Using industry benchmarks can be a helpful starting point, but companies should also consider their specific objectives, market position, and growth expectations when determining their marketing budgets.
Marketing Budget Line Items
A balanced marketing strategy should take into account the company’s unique goals, target audience, industry, and resources. While the comprehensive marketing budget line items below cover a wide range of marketing activities, it is not necessary for a company to use all of these line items in its strategy. Instead, businesses should focus on the marketing activities that are most relevant and effective for their specific needs.
- Advertising and Promotion: Engages the target audience through paid marketing channels, increasing brand visibility and generating leads.
- Digital advertising
- Event marketing
- Influencer marketing
- Sponsorships and partnerships
- Traditional advertising
- Branding and Design: Establishes a cohesive and recognizable visual identity, enhancing brand recognition and credibility.
- Brand guidelines
- Logo and visual identity development
- Marketing collateral
- Packaging design
- Website design and development
- Content Creation and Management: Develops and manages engaging content to inform, educate, and entertain the target audience, fostering brand loyalty and generating leads.
- Blogging and article writing
- Copywriting and editing
- Graphic design
- Podcast production
- Video production and editing
- Webinar production
- Email Marketing: Delivers personalized and targeted content to subscribers, nurturing leads and maintaining customer relationships.
- Email campaign creation and execution
- Email list building and management
- Email marketing software and tools
- Email template design
- Market Research: Provides insights into customer needs, preferences, and trends, informing marketing strategies and tactics.
- Focus groups and surveys
- Industry reports and whitepapers
- Primary research
- Research tools and platforms
- Secondary research
- Marketing Strategy and Planning: Sets the direction for marketing efforts, ensuring alignment with business objectives and maximizing the effectiveness of the budget.
- Competitive analysis
- Market segmentation
- Marketing goals and objectives
- Marketing plan development
- Target market identification
- MarTech Stack: The technology and digital Infrastructure that facilitates efficient marketing operations, automate tasks, and provides valuable data and insights.
- Mobile Marketing: Reaches and engages customers through mobile devices, leveraging location-based targeting, mobile apps, and SMS/MMS campaigns.
- App development and maintenance
- Location-based marketing
- Mobile advertising
- Mobile analytics and tracking tools
- SMS/MMS marketing
- Public Relations: Builds and maintains a positive image for the brand, fostering trust and credibility through media relations, press releases, and events.
- Crisis management planning
- Media outreach and relationship building
- Press releases
- Publicity events
- Reputation management
- Social Media Marketing: Builds and maintains an online presence, fostering community engagement and expanding the brand’s reach.
- Community management and engagement
- Content creation and curation
- Influencer partnerships
- Social media advertising
- Social media profile setup and management
- Human Resources: Invests in the skills and expertise needed to execute marketing strategies and maintain a high-performing team.
- Agency fees
- Freelance or contract staff
- Marketing team salaries and benefits
- Recruiting and onboarding
- Training and professional development
- Miscellaneous Expenses: Covers a variety of other costs to support marketing efforts, testing new channels and mediums, maintaining compliance, and addressing unexpected needs.
- Contingency fund
- Innovation fund
- Legal and regulatory compliance
- Office supplies and equipment
- Printing and production costs
- Software and technology subscriptions/licenses
- Travel and lodging for marketing events
Factors That Influence Marketing Budgets
Here are some factors to consider when deciding which line items to include in a balanced marketing strategy:
- Business Objectives: Align marketing activities with the company’s overall objectives, such as increasing brand awareness, generating leads, or boosting customer retention.
- Product Superiority – your product is so good that your customers and the media invest their time and energy – enabling you to spend less money.
- Affiliate Superiority – instead of paying for marketing, you provide discounts and rewards to your customers who invest their time and energy.
- People Superiority – internal staff that provides amazing results and clients providing fantastic testimonials, reviews, and social media sharing that drive growth requiring less budget.
- Target Audience: Consider the preferences and behaviors of the target audience. For example, if the audience is more active on social media, prioritize social media marketing over traditional advertising.
- Industry: Some marketing activities may be more relevant or effective in specific industries. For instance, public relations might be more critical in highly regulated sectors, while content marketing might be more effective in industries where educating the audience is essential.
- Budget: Allocate resources according to the company’s financial situation, ensuring that the marketing strategy remains cost-effective and delivers a positive return on investment (ROI).
- Competitors: Analyze the marketing strategies of competitors to identify gaps, opportunities, and areas where the company can differentiate itself.
- Marketing Channels: Identify the most effective marketing channels for reaching the target audience, considering factors like reach, cost, and engagement.
- Performance Metrics: Continuously monitor and analyze the performance of marketing activities to identify what works and what doesn’t. Adjust the marketing strategy accordingly to optimize results.
A balanced marketing strategy should focus on the marketing activities that best align with the company’s objectives, audience, and resources. It’s essential to regularly review and adjust the strategy based on performance data and changing market conditions to ensure its ongoing effectiveness.
Artificial Intelligence Is Already Impacting Marketing Budgets
Artificial Intelligence (AI) is already having a significant impact on marketing budgets and will continue to shape the way companies allocate resources in the future. Here are some ways AI affects marketing budgets:
- Advertising Optimization: AI algorithms enhance advertising campaigns by analyzing performance in real-time, adjusting bids, placements, and targeting for a better return on ad spend (ROAS) and more efficient budget use.
- Chatbots and Virtual Assistants: AI-powered chatbots and virtual assistants automate customer interactions, improving customer experience and freeing up resources for other marketing tasks.
- Content Creation: AI-driven tools automate content creation, such as ad copy, social media posts, and blog articles, using natural language processing and machine learning algorithms, saving time and resources.
- Enhanced Analytics: AI-powered analytics provide accurate, real-time insights into marketing performance, allowing data-driven decisions and budget optimization for more efficient spending on effective channels and activities.
- Increased Efficiency: AI-powered tools and platforms automate marketing tasks like data analysis, content creation, and customer segmentation, reducing the time and resources required for manual work and enabling more effective budget allocation.
- Integrations: AI-driven platforms reduce the need for integration specialists and development to synchronize data sources, impacting resource allocation.
- Marketing Automation Platforms: AI-enhanced marketing automation platforms streamline and manage tasks like lead nurturing, email marketing, and social media management, saving time, reducing errors, and improving efficiency.
- Personalization: AI enables highly personalized marketing experiences, including email campaigns, product recommendations, and content, leading to higher engagement rates, increased customer loyalty, and better marketing investment returns.
- Shift in Skill Sets: As AI integrates further into marketing operations, shifts in required skills and expertise may affect resource allocation for hiring, training, and professional development.
- Improved Targeting: AI analyzes data to identify patterns and trends, helping companies better understand customer behavior and preferences, enabling more targeted marketing campaigns, reducing wasted ad spend, and improving marketing ROI.
AI will continue to impact marketing budgets by increasing efficiency, improving targeting and personalization, enhancing analytics, and shifting the required skill sets within marketing teams. Companies should consider the potential benefits and challenges of integrating AI into their marketing strategies and adjust their budgets accordingly.