As I mentioned in my last blog, I have the honor of working with clients big and small in a wide variety of industries. One thing I continue to see is the absence clear marketing strategy. In order to make business-critical decisions you have to be able to succinctly state 1) who you are, 2) what you do, 3) for whom (your target market), 4) how you’re different (your USP) and 5) why that differentiator matters. Hand-in-hand with this is the issue of marketing spend.
I often hear from leaders, “Our sales team just isn’t getting enough business for us.” My first question to this lament is, “What are you spending on marketing?” If the answer is anything less than 5-7 percent of overall company spending, it’s a pretty strong indication of where the problem may lie. Marketing generates leads. A cut in marketing spend means a shortage of leads, which results in a shortage of sales. Don’t blame your sales department on low revenue when marketing is not producing because of inadequate budgeting, lack of commitment by executives or ineffective marketing spends.
Marketing is essential to every business, yet more often than not I encounter companies who are spending next to nothing on it. There’s no way your business and brand is getting in front of potential customers with inadequate marketing dollars, especially if you are in a tight, competitive market The following is the advice I routinely share with clients on how to determine a marketing budget.
Do Your Research
I know your company is unique, but nevertheless there is great value in comparing it to others. Is your marketing budget on par with your competitors? Which strategic and organizational factors influence budgets? What trends in your industry affect marketing dollars? According to a recent CMO survey, the average marketing budget comprises 11 percent of total company budgets. Consumer packaged goods companies allocate by far the largest percent of total company budget to marketing (nearly one quarter), followed by consumer services, tech software/biotech, communications/media, and mining/construction. Companies that spend the smallest portion of their budgets on marketing include transportation, manufacturing, and energy.
Know Your Business
In addition to researching your competitors and the marketplace, it’s important to understand how things like:
- Annual income – according to the CMO survey, the average marketing budget is 7.5 percent of total revenue, with tech companies the biggest spenders at 13.8 percent, and consumer packaged goods companies the smallest at 10.9 percent.
- Business longevity – it’s recommended that newer businesses, which have more leg work to do in terms of brand awareness and name recognition, should allocate 12 – 20 percent of gross revenue to marketing. Businesses that are more than 5 years old and established in the marketplace should allocate 6 – 12 percent of gross revenue.
- New vs. established product – even if your company is well-established, the launch of a new product calls for a least a 20 percent increase to the current marketing budget.
- Brand awareness — approximately 50 percent of marketing funds go toward building brand awareness. If your target market is not familiar with either you or your products or services, the percentage of sales revenue budgeted towards marketing will need to be higher.
As with understanding basic marketing strategy, developing a marketing budget is not as difficult as, for instance, mastering the wounded peacock yoga pose. Do your research, ask for advice and learn from your mistakes.
