Spending money on marketing depends on various factors. Learn about how and how much you should expense!
Whether you're building a brand spanking new brand from the ground up, or you're an established brand looking to capture more leads — marketing is a crucial part of your strategy. Sales may slay the dragon, but marketing gets the horse and provisions and carries you up-the-hill into the dragon's lair. Marketing is how you get customers in-the-door.
For many brands, figuring out how to handle marketing spend is tough enough. But, when it comes time to plan out your budget, how much should you actually allocate to marketing?
Better yet, how much is everyone else spending on marketing?
That's a tough question. Marketing spend varies from industry-to-industry and niche-to-niche. There are millions of variables glued to the equation.
Today, we're going to break the question "how much should you spend on marketing" down, and give you a clear idea of your ideal spend range. Plus, we're going to go over what you should be spending your marketing budget on.
Let's get started!
The Big Picture (7.5%)
The U.S. Small Business Administration suggests that brands that earn over $5 million in sales a year spend 7 - 8% of their gross revenue on marketing. In all honesty, that's not a bad guesstimate. The 2018 CMO Survey — a yearly survey ran by Deloitte, Duke's Fuqua School of Business, and the American Marketing Association — shows that the average marketing spend in 2018 was 7.5% between all brands.
There we have it! Question answered. You should spend 7.5% of your gross revenue on marketing, right?
But, even when we look at the broad picture, things start to get complicated.
The 2018 - 2019 Gartner CMO Spend Survey paints a different picture. According to Gartner, brands spend an average of 11.2% of their budget on marketing.
That's a huge difference!
Therein lies the problem. The answer to this question is really going to depend on who you survey.
For starters, the area of business you're in is HUGE.
B2B marketing requires different avenues, strategies, and expenses than B2C marketing. On average, B2B is going to have a higher cost-per-lead (CPL) than B2C markets. But, they need less of them to turn a steady profit.
For example, the benchmark CPL for IT services is £38 -£75, while the CPL for consumer goods sits around £20. Of course, this also varies widely. Some B2B channels are upwards of£400 per lead, and some consumer goods channels can cost +£150 per lead. It really depends.
As a general rule of thumb, B2B costs more per-lead than B2C. But, what about total spend?
B2B Vs. B2C (10.1% vs. 5.4%)
While B2B brands may per more per lead, they usually spend less overall. That's because the average B2B business (both product and service-based) need WAY fewer leads to stay profitable. A B2C consumer goods brand may calculate its customer's lifetime value at £50. But, that B2B SaaS brand may have a lifetime value of £1,500. The B2C needs 30x more leads!
This is reflected in benchmark studies. The average B2C product-based company spends 10.1% of their revenue on marketing, while a B2B product-based company only spends around 5.4%. That's a huge difference.
Does that mean B2B spends less on marketing?
Yes... and no.
B2B business in the same niche and service will put less of their revenue towards marketing, but that's isn't always less money. Often times, B2B brands are spending more in terms of money, but it's a small percentage of their total take.
Note: For clarity, this could soon change. According to the annual CMO Survey Highlights, healthcare, education, and B2B tech were the fastest growing marketing segments while consumer services, consumer goods, and retail have dipped. This is a good sign. Industries are starting to even out, and the market for marketing services is maturing into a healthier, more predictable animal.
What Does This Mean?
So, the average brand spends somewhere between 5 - 12% of their total revenue on marketing. That leaves A LOT of wiggle room. Don't worry! We'll cover that later.
But, we can garner a few critical insights from all of this research.
- B2C brands typically spend more revenue on marketing than B2B brands.
- Product-based brands usually spend more revenue on marketing than service-based brands.
- The actual revenue spend varies by industry, niche, services, and about a thousand other factors
(again, we'll cover this at the end.)
So, here's a great question. We have gone over a rough estimate of how much revenue to spend on marketing. But, how are brands actually spending that budget?
How Brands Spend Their Marketing Budget
Marketing spend can be broken down into four channels — people, technology (martech,) digital, and traditional.
The people category includes agency fees and employee costs. Currently, the spend between agencies and employees is split almost right down the middle.
According to the recent Gartner CMO survey, 24% of marketing budgets were spent on employees, and 23% was spent on agencies. This closes the gap to 1%. In the past, this number has been as high as 5% in favor of employees. But, as digital marketing increases in complexity, agencies have become a serious value channel for competitive brands.
We've always recommended that brands split their budget between in-house and agencies. Both have tremendous value. By combining the two, you're getting two sets of eyes with two different perspectives. It's a win-win.
Let's be honest — the modern marketing ecosystem is heavily reliant on a tech stack. Between AI, automation, and big data, the tech stack is more important than ever. You need the right tools to fuel your campaigns. This year, 29% of marketing budgets were spent on martech. It was only 22% in 2017.
Of course, it doesn't help that you need an increasingly complex (and siloed) tech stack to stay competitive. But, that trend doesn't look like it's ending anytime soon.
The remaining marketing budget (23%) is shoved into paid digital ads. No big surprise, but digital marketing grew again this year. Traditional advertising methods are getting more difficult to justify. You still need them, but they definitely take a backseat to digital.
Of that 23%, brands are spending 8.9% on digital ads (e.g., social media, mobile, etc.) and 5.3% on paid search. Honestly, we would recommend bumping this up for most brands, but many businesses haven't caught up to the digital storm yet.
This is the remaining 7% of that digital spend. We know! This isn't digital spend. But, traditional marketing is shrinking so fast that adding it into your digital spend budget makes sense. Almost all of this is split between TV and out-of-home ads. OOH and TV ads remain expensive, so this 7% isn't going to get you very far. Don't get us wrong! You NEED traditional paid ads. But, you have to get scrappy and conservative with traditional ads so you can bump up your digital spend.
How Much Should YOU Spend?
Let's be honest — there's a TON of wiggle room in your marketing budget. If you've followed us this far, the average brand is spending 5 - 12% of their revenue on marketing. So, what does that mean for YOU?
What should YOUR marketing budget be?
Well, somewhere between 5 - 15%. To get a better estimate, you really need to take into account where your business is at, it's size, what resources you already have, and what your goals are for the coming year.
Your Business Size
The bigger the business, the less of your total revenue you'll probably spend on marketing. There are a few reasons for this.
- You probably already have an established brand.
- You have marketing resources from the previous year(s).
- You've already invested in some martech.
If you're new, you'll have to build up some of that core marketing infrastructure. Typically, newer brands spend anywhere from 7 - 12% of their revenue on marketing. Some new brands spend upwards of 30% — especially if revenue is low.
There are five resources that we would consider "pillar" resources for marketing.
- In-House Team
Your website can be a costly addition to your marketing budget. You NEED a high performing website. It's a 24/7 salesperson and the core base for almost all of your marketing capabilities.
You'll also want the right marketing technology to help you measure results, automate campaigns, and track performances. These can range from free to hundreds of thousands a month. It really depends on your size and needs. Most brands end up choosing a HubSpot package that fits their needs. Since HubSpot bundles all of their marketing tools in one package, it can be a great way to reduce these martech costs, which can eat away at your budget if you're not careful.
Then you have people resources. You should definitely invest in an agency and an in-house marketing team. That being said, some smaller brands can get away with only having an agency.
Before you even think about your marketing budget, you have to define your goals? What do you want to achieve? The more aggressive the results, the bigger your marketing budget is going to be.
It's essential that small brands choose an agency who can get scrappy with their budget — whether that's a traditional agency with small business experience or a growth hacking agency.
Let's look at some scenarios that illustrate how business marketing goals can differ based on their size, resources, and goals.
You're a small B2B business that's been around for over 10 years. During that time, you've established a pretty routine marketing plan. You spend some money on ads each year, you bump up your martech to the latest version, and you use the same agency you've been using for the past 3 years.
You're thinking about spending around 6% of your revenue on marketing. About half of that will go to your in-house team, and your inbound agency — and the other half is going to paid ads. You don't really need to calculate your martech costs, because the update isn't going to cost you any extra money.
That's 3% for agency and in-house and 3% for paid ads.
This lets you stay competitive in organic by utilizing your agency's expertise, and you have enough paid ad spend to target key business decision makers on LinkedIn, invest a little in SEO ads, and put the rest towards branding ads. You may even have some cash left over for a billboard or two.
You're a small B2C business that's brand new. You don't have a website or martech, and you are just starting on your organic strategy. You need an agency, but you can lean on your first few employees to do the little in-house marketing that you currently need.
You're thinking about spending 15% of your revenue on marketing. About half of that is going towards your website and martech. The other half is going towards your agency and paid ads.
You need a killer website. That means hosting, design, SEO, technical design, and all of the other things that go into site design. To keep it on-budget, you're going to use shoestring methods to promote your new website so you can focus most of your costs on building it. You don't need to spend much on martech, but you're thinking about going with a $50 a month starter HubSpot subscription for the basics.
The rest of the money you can throw at your agency to develop some branding strategies and use paid ads to get the word out about your brand. It's critical that you start leveraging social media and email to grab as-many-customers-as-possible. At the same time, you're you want some of that money to go towards customer retention strategies to boost your lifetime value.
You're a large enterprise with tons of available resources and lots of previously acquired resources. You're going to spend 7% of your revenue on marketing.
You want to continue to optimize your website, push out some apps, hire a few more team members, invest in this year's latest-and-greatest martech, and continue to utilize a few different agencies.
Your budget is hyper-detailed and complex. You're putting fragmented percentages in a variety of marketing avenues, and you're using statistics and metrics to carefully track your spend on each resource.
Figuring out your marketing budget will depend on your size, resources, and goals. Most brands spend anywhere from 5 - 12% of their budget on marketing. Some new brands will raise that number as high as 15%. Your budget should be spent on four key categories — people, marketing technology, digital, and traditional.
There is no perfect answer to "how much should I spend on marketing."
The truth is, you have to figure that out by looking at your existing resources and your goals.
Having trouble figuring it out? Contact us. We can help brands discover their budget AND help them utilize it. That's a win-win!