How much should I spend on Marketing?
To answer that question, you must first answer: “What, really, is marketing to your business?”
Do you consider marketing a waste of money, or the means to increase your sales?
There is only one correct answer to this question and you know what it is. The trouble is, you haven’t acknowledged or accepted it just yet if you haven’t been focusing on marketing your business.
But it is a fact that all fastest growing companies invest about 14 percent to 50 percent of their revenue on marketing. According to Annual Fiscal Reports of 2014 Twitter spent 44%, Oracle 20% and Intel 15% of their revenue in sales and marketing. That does not mean that marketing solely drives company growth, but that marketing is essential for increasing sales, leading to the growth of your business.
So I hear it’s 10%?
10% may be regarded as the general rule of thumb, but do you seriously think that it is as simple as that?
Marketing your business is as unique as your business itself. You have to consider your business industry, the kinds of products and services you offer and your targets for future growth. According to different theories, about 5% of the revenue is required to be spent on marketing just to maintain their presence in the marketplace, while 10% is recommended for growth. Even the above mentioned figures for Twitter, Oracle and Intel do not match up because all three serve different industries and had different goals and objectives for expansion and sales.
How much are your customers worth?
Another way that marketing budget is decided is based on the worth of your customer. It requires you to work out how long a customer remains with you and their worth to you over the course of that period. But the thing to remember is that you have to think of marketing as an investment to gain new customers rather than an expense for just making sales.
Is there a definitive answer?
Sadly, there is just no single figure to tell you that spend this much on marketing and you will definitely not go wrong. The 2014 facts and figures show that Apple was the only company that spent less than 10% of its revenue on marketing, while the average was found to be 28% among the different companies.
Thus, you have to work to figure this one out for yourself. But don’t think that this is it!
While working on your marketing budget, consider the following factors to help you narrow it down to an exact number between 10% and 50%.
What are your goals for the future?
This question is the most important one of all. If you want to expand aggressively, it is very likely that you will spend closer to the 50% mark. The CRM company Salesforce spent 53% of their revenue in 2014, experiencing an explosive growth of 33%.
Defining your goals for the future makes it pretty clear whether you just want to maintain your standing in the market or expand and grow.
What is your standing in Brand Awareness?
About 50% of the marketing budget is spent on building brand awareness. If a company has already established strong brand awareness in the market, they have a competitive edge by spending less on their marketing. On the other hand, if your brand is not recognized by your target market, then you would have to spend a lot more to market your brand, products and services. This ties in well with the example of Apple mentioned above. Apple has pretty strong brand awareness which is why the company spent less than 10 percent of its revenue on sales and marketing.
What kind of products are you marketing?
Are you marketing established products or launching a new one?
Business corporations tend to spend less than 10% on marketing established products, while going as high as 50% to introduce new products. This is quite understandable as new products will require more awareness and recognition efforts to gain customers, while established products would already be having a customer base.
Marketing drives revenue
Yes, you need to spend money in the first place to make money. Makes sense, right?
Typically, marketing drives revenue rather than the other way round in almost all successful businesses. Such businesses spend undertake project- or task-oriented spending for their marketing and advertising needs. Depending on your targeted revenue, you will have to allocate your marketing budget. Experts recommend drafting a marketing plan and keeping all records for marketing actions that have delivered results.
The chicken and egg marketing
You need to grow your brand to make money but you don’t have any money to do that. Is this how you feel?
In the corporate world, this is called as the chicken-and-egg-marketing. So you see now that why its crucial for start-ups to be properly funded. And if not, you have to tread very carefully and spend every cent wisely in addition to spending more to build your brand and gain recognition. So, if you have ever thought that establishing a business is easy, you have probably changed your mind by now. Because, it just isn’t. It always takes way more time as well as money than you expected.
But the good thing is, you get a good ROI when you do it right the first time.
How much can you afford?
Without regard to what other businesses and corporations are spending, you have to allocate a marketing budget that you can afford. If you have other development plans and ideas that need to be crafted into reality, then make sure that you market accordingly. There is always a limit to how much you can afford to invest in marketing and advertising your product or business, so show some wisdom and let your affordability dictate your marketing budget. But do bear in mind that in order to maintain your existing sales, you will have to increase your marketing budget. This is evident from the marketing strategy of Coca Cola. Being the top brand of the world has not stopped Coca Cola from spending aggressively in advertising and marketing.
Do you have competitors?
When drafting your budget for marketing, pay attention to your competitors. Consider the following:
- Where do you stand in the competition?
- Where do you want to be?
- What are you willing to spend to get there?
- What will be the response of your competitors?
You might also want to increase your marketing efforts if your competition is giving you a hard time and is more established than you are. Chances are that they have more customers and you will have to make huge efforts on your marketing and advertising to steer in those customers. Companies in highly competitive industries, such as retail, pharmaceutical and consumer products, spend about 20 to 50 percent of their revenue on marketing.
What is the nature of your business?
Depending on the nature of your business you will have to spend less or more comparatively on marketing and advertising. If you are a company that offers consumer goods and services, then you will have to spend more as compared to business-to-business companies.
Your Expected ROI
When decide your budget for marketing, you will want to know your ROI. Even though that it’s a fair question, yet again, there is no definitive answer.
The answer sometimes also depends on the type of marketing tactic; a marketing tactic focused on branding will require a longer time to witness favourable results as compared to a strategy for generating leads. Typically, almost all marketing strategies deliver results exponentially, for as long as they are underway in a coordinated and versatile fashion, targeting the right audience.
Conclusively, there is no single figure to tell you how much you should spend on marketing, but the general rule of thumb is to invest 10% of your revenue. Investing that much initially would be safe as the 2015 survey conducted by Chief Marketing Officers (CMO) Council found that:
- B2B firms spent 7 to 9 percent of gross revenue on marketing
- B2C firms spent around 9 percent, in contrast to 11 to 13 percent reported in the 2012-2013 survey
In addition to keeping the above fact in mind, do remember the factors discussed as they will help you in making the final decision regarding how much you should spend on marketing.