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The question of how much business expenditure should be allocated to marketing is a continual source of contention and uncertainty for many companies.  Unfortunately, there is no straight-forward answer.

On a superficial level there is a strong correlation between marketing expenditure and the quality of the results that are delivered in exposure, leads and sales.  Generally speaking, it is said that an adequate marketing spend is around 5 – 10% of revenue. But how accurate is this number?

In order to gauge the best budget for marketing in for your business, there are a few key considerations that must be taken into account.  These are: what are your current levels of revenue, what industry is your company in, and what are your marketing objectives.  Answering these questions will help you to shape your marketing strategy and define the level of marketing spend that is needed to achieve your goals.

Research conducted by industry sources provide an indication of current trends in marketing expenditure. Conducted by Deloitte, the CMO Survey is a bi-annual study that investigates the marketing activities of companies of a range of sizes and from a range of industries.  Their most recent survey, conducted in January 2018, found the average expenditure on marketing to be around 8% of revenue.  Interestingly, companies earning less than $25 million in revenues generally allocated the largest proportion of their sales revenue to marketing, at an average of 12.4%. When considering solely the business-to-business market, companies in B2B Products spent on average 6.9% of revenues on marketing and B2B Services spent on average 8.6% of revenues on marketing.

There was also significant variation in the marketing spend between industries.  Consumer services, for example, spent on average 18.9% of their revenue on marketing, compared to just 2.38% in the manufacturing industry.

For the different industries, the average spend was:

• Banking/finance/insurance = 9.2%
• Communications/media = 8.9%
• Consumer packaged goods = 9.1%
• Consumer services = 18.9%
• Education = 12.0%
• Energy = 8.25%
• Healthcare = 9.0%
• Manufacturing = 2.38%
• Mining/construction = 3.0%
• Service consulting = 7.5%
• Retail/wholesale = 4.4%
• Tech/software/biotechnology = 9.7%
• Transportation = 8.5%

Different companies have different requirements and goals – a more aggressive growth strategy, for example, requires a significantly higher marketing budget. Take market share, for example.  If you are looking to maintain your current position, a budget of 5% of revenue is recommended. However, if you are looking to grow, then a typical spend is around 10% of revenue (McKay, 2018).

When it comes to deciding the marketing budget for your business, there is no magic number or decisive formula. The optimal budget will require ongoing estimation and re-evaluation. Above all, aim for quality over quantity to ensure that every marketing dollar that is spent produces the best possible results for your business.

Want to know more? Visit www.evettfield.com.

World Market Watch LLC, February 2018, ‘The CMO Survey’, accessed May 2018
https://cmosurvey.org/results/february-2018/

Charles McKay, April 2018, ‘What percentage of revenue should you spend on marketing? accessed May 2018
https://www.synx.com.au/blog/what-percentage-of-revenue-should-you-spend-on-marketing