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Marketing budgets: the magic number

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by Bryan Dollery
on

This amount of that, that percent of this... is there really a magic number of how much your marketing budget should be?

What percentage of their revenue should a company spend on marketing? As is the case with most significant questions, there isn’t a straightforward answer. It depends not only on the company’s strategy, but also on emerging trends and technologies that can potentially affect that strategy. While the bottom line is that marketing budgets are consistently increasing, the details lie in how and where this money is being spent.

Who's doing what?

B2C companies generally spend more than B2B; in 2015, US B2B firms’ marketing budgets were around 7-8% of their revenue compared to B2C marketing budgets which were around 9%. Furthermore, in a survey by CMO, businesses generating revenues under 25 million USD a year were the only ones to spend more than 10% of their revenue on marketing. This suggests that a need for growth encourages greater marketing spending, but is it an investment that pays off? It can be. In fact, it can pay itself back several times over, provided that the money goes to the right places.

Where to spend

DMA points to some of the great opportunities that are emerging. For example, 74% of millennials are willing to receive location-based alerts, and since 80% of them use their phones in-store, for many, this is a chance too good to miss.

Another area that shows no sign of slowing is that of programmatic ads - they currently account for half of all spending on display advertising, plus, programmatic spend on mobile has increased by 26% in the past two years. Whatever your business, make sure your budget covers the best strategies for reaching your customers.

Incredibly, 70% of companies are still failing to collect data from social media. This is obviously problematic, because without correctly harnessed data, marketers can't tell which strategies work and which ones don't. However, Alex Steer of Maxus UK warns that too much data can have the same result. With so many channels offering so many means of engagement, there are so many things to measure: clicks, likes, shares and comments. "This oversupply of data," writes Alex, "means that, for almost any campaign, it's possible to find some metric that went up."

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Furthermore, Reuters refer to a report by Garnter claiming that "marketers are poised to increase spending on paid advertising on social networks", while DMA claims that within the next five years, spending on social will grow to account for 24% of marketing budgets. So, if that much money is going toward social, it's wise - necessary, even - to measure its results, and measure it effectively. How does Maxus do it? Alex explains: "we’re taking some of the pillars of marketing effectiveness – KPI-setting, benchmarking, segmentation, econometric modeling – and fusing them with new, fast-moving data sources and methods such as cluster analysis and digital attribution. This helps us take advantage of what an ad-served world can offer without getting lost in the noise." So whatever portion of your marketing budget you see fit to dedicate to social, remember, make room for analytics too - and make sure they work.

 

"Marketers are poised to increase spending on paid advertising on social networks such as Facebook in the next twelve months due to the declining reach of free social marketing."

 

FAST FACTS

According to a report on marketing budgets by WebStrategies:

  • The total marketing budgets are usually between 7 and 12% of a company's revenue
  • This year, the average firm allocates 30% of their marketing budget to online
  • The percentage of the average marketing budget dedicated to online is expected to grow to 35% by 2019

The Bottom Line...

For companies looking to achieve growth, it is imperative to know how and where the marketing budget is best spent. But how strong can the correlation be between the size of the budget and the rate of growth? Quite strong, it seems. 2014 saw some of the world's most establish companies reap huge benefits from investing big in their marketing budgets. Twitter dedicated 44% of its revenue to sales and marketing, and saw a staggering 111% growth. In the same year, Salesforce spent 53% of its revenue on marketing and sales and saw a 33% revenue growth, earning them a 16% market share in the CRM industry, surpassing Microsoft, SAP and Oracle.

Google dedicated 12% of their revenue to their marketing budget in the same year - that's over 8.1 billion dollars spent by the worlds biggest marketing giant on marketing themselves. The result? 19% revenue growth. Microsoft's magic marketing number was 18%, LinkedIn's was 35%, and they saw 12% and 45% revenue growths respectively. Even the biggest brands don't underestimate the value of a solid marketing investment.

A final tip: marketers should also look to invest internally - web design, mobile and app developers are at the top of hired marketing talent, making up a combined 37%. Investing in your team will pay off in the short and long term, enabling better marketing efforts today and a continued readiness to embrace the trends and challenges of tomorrow.

If there is a magic number for how much your marketing budget should be, then it is nothing more or less than 100% of what your strategy demands. Look at emerging trends and technologies, and combine that information with insights from effective data analysis. Shape the strategy, then form the number. A well planned and executed strategy will more than pay itself back.

Need helping getting the most from your marketing budget?

Sources

  1. WebStrategies: How much should you budget for marketing in 2017?
  2. Statista: The digital ad market still has room to grow
  3. Reuters: Marketers seen spending more on paid social ads
  4. TheDMA: 7 Trends that Should Shape Your 2017 Marketing Budget
  5. Campaign: Our industry seems to have too much data, too little sense

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