Know-How Exchange : Research/Metrics

Phil is absolutely correct, but he didn't go far enough. Even if we had a hard number for the average marketing budget as a percentage of sales, it would be totally useless. This is one benchmark that will always be exactly wrong for your purposes.

The number ranges from something less than 1% to 50% or more. It depends on what the company is trying to accomplish, what the goal is, and how well tuned their marketing machine is.

The fact that the average might be 5% (for example) doesn't begin to tell you whether that figure is even close for your industry, your objective, your marketing skills, and how you account for marketing expenses. (Does it include sales support? Does it include travel expenses for marketing staff? Does it include packaging? Does it include product development? Etc.)

Think about software, where the actual manufacturing cost is relatively low. Marketing might be the largest single budget category. Then think about hardware, where operations costs are likely to dominate, and marketing will be relatively smaller. If you average those two, you might get 18% of sales. But that doesn't make 18% right for a company in either industry, and it is almost certainly wrong for someone using that average as a benchmark.

So this is one question that not only doesn't have a good answer, but even if it did you would be terribly misled by whatever average you came up with. Wrong question. Wrong way to think about how much to invest in marketing.

Further to Phil's point about "investment" versus "spend," if you don't have your eye on the objective of marketing effort, you're likely to "spend" money foolishly. When you embark on a marketing campaign because it will enable you to achieve an important objective, it's clear that you are "investing" in an important route to growing the business (or achievement of some other important objective), and that you expect a return on your investment.

As everyone has already said the question you're asking has no meaningful answer.

I would like to try to guess the question you REALLY wanted to answer: "How can I best set my marketing budget so it is defensible to my management team/board of directors/the business owner/shareholders - or who ever I have to satisfy?"

And the answer is complex and comes in many layers:

1. First you must define and refine a clear, focused business strategy.
2. Then you must devise a marketing strategy to support the business strategy.
3. Then develop a series of tactics to underpin the marketing strategy.
4. Then cost each tactic, and estimate the likely ROI for it.
5. Prioritise the tactical initiatives based on those that give the strongest ROI or ROI for the longest time - whichever is the most important. This is the 'bang per buck' estimation.
6. Execute the prioritised tactics.
7. Measure the results.
8. Learn from the process.

It's simple really - but it takes years of expertise to be able to develop the discipline required to implement it skillfully.

If you are struggling, then bring in some outside professional help to make sure you get it right. The cost of the help will be repaid many times over in time savings and in focusing the marketing investment to where it will bring the best returns.

Hope that helps.

ChrisB

One more point in addition to the above helpful guidelines is that even within the same company, the marketing budget for different geographical locations could be different, yet depending on the different maturity stage of the company products and services, the ROMI needs to be looked at with not just a short-term view but a mid- to long-term view.

By the way, stable B2B business with 5% marketing investment (not including salary) is reasonable in many situations. Well, I don''t believe there is a need for benchmarking in this percentage anyways.