How much should I be spending on marketing?

Marketing image

This is a question we’re often asked and the short answer is there is no one size fits all reply. It varies dramatically depending on the type of business you are and what stage of your brand life cycle you’re at. And instead of using the word ‘spend’ we prefer ‘invest. For every dollar you put in, you should be getting a significant return on that investment.

Figures from a 2017 CMO survey published by the American Marketing Association and Duke University showed that across all industries the spend averaged 6.9% of revenue on marketing.

What we know from research and our own experience is:

Most marketing budgets here in NZ fall between 5 and 12% of total revenue, but when you look at industry breakdowns, the figures vary wildly. Some SaaS companies spend as much as 40%. B2Cs generally spend more on marketing compared to B2Bs. Smaller companies spend more on marketing as a percentage of their total revenue.

Some clients are reticent to talk openly about their marketing budget as they fear agencies are simply out to get their hands on as much budget as possible. Our role as an agency partner is not to spend more of your money but rather to spend it more effectively. Like we said, if your investment is garnering returns, then our task is to increase that yield.

What we find really interesting is not how much but rather where the money should be spent and recently that trend has shifted to... digital. “Marketing leaders spent more on their websites, digital commerce and digital advertising than on other categories in 2016,” according to Gartner Research. “Of 14 spend categories surveyed, marketers spent the most on the creation and upkeep of their websites.”

Content marketing spend, that is, creating collateral to be used in various digital channels eg. video, blogs, social media content and so on has also been increasing steadily. According to a B2B Content Marketing report:

- 91% of respondents said they use content marketing. More than 70% had metrics showing content marketing has increased audience engagement and leads.
- The average percentage of total marketing budget spent on content marketing is 26%; the most successful, however, spend 40%.
- 38% of all respondents expect their content marketing budget to increase in the next 12 months.

A marketing budget should include all your activities to attract prospects and convert to customers. It will include everything from email signatures to websites, brochures to signage, product demos, trade-shows, advertising and digital marketing.

Every company is different but as a generic, very rough guide around 5 percent of total revenue spent on marketing will help maintain your current position. If you are looking to grow or gain greater market share your budget should be higher.

We recommend you run the numbers and establish a budget based of your business plan for the next 12 months.

Review what you spent previously and be critical of results obtained. Make sure you are properly branded in all of your visual material - consistency is key. Review your website and online strategy regularly. And if you haven’t already, increase digital and search marketing spend, which can be effectively measured.

Another way to look at your marketing spend is to consider your CPA or Cost Per Acquisition. How much did you spend to convert each customer? This is where you can drill down into the detail and refine your marketing spend in real time to ensure your marketing is agile and effective. More on that in a future issue.

For more support around this email Paul

Paul Fairbairn

Director