Let’s Talk Money – Part I: Budgeting Your Organization’s Marketing Spend

Think your marketing budget is sufficient? Think again.

Most B2B service firms spend about 3.4-10.1% of gross annual revenue (GAR) on marketing, but that might not be enough to grow your business.

Companies poised for growth allocate approximately 10-12% of revenue to marketing. Some of the most successful companies out there, megaliths like IBM or Microsoft, spend much more on marketing—upwards of 20%.

Why have such a large marketing budget?

Marketing is critical to drive conversions today: 94% of business buyers do some form of online research, and 80% of consumers price shop online before purchasing.

Without an active online marketing presence, your company likely won’t be competitive.

Marketing leaders spent more on digital advertising in 2016-17 than ever before, according to 2016-17 Gartner CMO Spending Survey. Such growth is only expected to increase in the future, with 59% of marketers anticipating a rise in their content marketing budget this year and massive spending increases within the next 3-5 years.

With all this in mind, how much should you spend on marketing to stay competitive and drive growth? Depending on a company’s specific needs, I recommend one of the three following strategies.

3 Ways to Determine Your Marketing Spend

A general rule of thumb for small businesses specifically is to establish a marketing budget that’s around 7-8% of GAR.

That’s not a bad place to start, and will probably maintain your position vs the competition, but based on the stats we just covered, it might not cut it for your growth goals. Consider the following approaches to decide the right fit for your organization:

  1. Bottom-Up Approach: Start with what you want to accomplish this year. Set your objectives and measurable goals and develop a marketing budget that will support them. This may sound like a pretty basic approach, but be sure that you’re realistic about marketing costs. The dollars add up fast, so don’t under-budget yourself!
  2. Top-Down Approach: Start with your target GAR for the year. Say you want to hit $12 million in revenue in 2018: then plan a marketing budget around that projected income. The benefit of this approach is that you can re-assess your progress throughout the year and adjust spend as needed. If halfway through the year you’ve already surpassed your quarterly goals, then increase your marketing budget to keep pace with your adjusted GAR projection.
  3. Stepwise Approach: Based on your projected growth for the year, increase your previous marketing budget by an appropriate amount for the coming year. For instance, if you spent 6% on marketing last year and expect your company to grow this year, you should increase your marketing budget by a set percentage to keep pace with your growth.

Stay Flexible and Assess Your Progress

Don’t get too comfortable: your marketing spend isn’t static. The allotted budget for marketing should be flexible from year to year and grow along with your company.

I’ve worked with larger companies that allocated only 1-2% of GAR to their marketing and wondered why they couldn’t keep up with their competitors. Not only is this much too low of a marketing spend for a company of that size, but it leads to marketing stagnation since they aren’t able to keep up with their competition in the growing digital marketplace.

Money Spent on Marketing is Money Well-Spent

Your organization’s marketing is a money-generating machine—don’t stunt its growth with an insufficient budget!

In part two of this series, I’ll cover how to do a 6-month marketing and budget assessment to make sure your strategies are working. Stay tuned!