The question of how much revenue should be invested in marketing is one that I am frequently asked by clients, large and small. Even with the most sophisticated data analytics and tracking packages, precise analysis of exactly what is working and what is not can be a tricky business. Returns on marketing investment are not always immediate, visible or easily attributable.
Therefore, setting marketing budgets always requires an element of calculated risk. This risk is multiplied for start ups or businesses who have never undertaken any formal marketing activity before and therefore have no data on past performance to work with. For these businesses, any assignment of marketing budget is a step into the unknown.
So how can we go about setting a marketing budget? The standard answer is to spend around 5% of your total revenue. However, Smart Insights recently posted a fascinating infographic showing what some major brands had spent on their marketing and sales efforts. These businesses were spending significantly more than 5%:
- SAAS goliath Salesforce spend a chunky 53% of their annual revenue on marketing.
- Twitter spend 44%
- Oracle spend 20%
Each of these are high growth, world leading companies, for whom sizeable marketing spends are clearly paying dividends. So, do you need to be investing this much into your marketing?
Not necessarily. Clearly, if you have significant capital investment or revenues and can afford it, this sort of expenditure (if spent correctly) can deliver rapid growth. However, if you are not in this fortunate position you may have to be more circumspect with your budget. There is no simple or quick way to decide on what you should be setting your marketing budget at, however, as you begin to think about this, ask yourself these three questions:
1. Does your business have significant opportunity for growth?
If the answer is yes then your business will certainly benefit from a sizeable marketing spend and you will want to think about investing more than the 5% rule of thumb.
2. What are your competitors doing?
It’s not a case of blindly following what your competitors are doing, but if they are putting serious money behind getting their message out there, you probably need to too. Take a look at where and when your competitors are marketing themselves and check out their annual reports to see where their money is going.
3. How good is awareness of your brand in your target market?
If brand awareness is low, you are going to need to up your spend to tackle this issue. Generating brand awareness is one of the most expensive parts of the marketing funnel so set aside a significant budget to do this effectively.
Once you’ve set your marketing budget, regularly review it, track as much as you can and try as far as possible to work out the return on everything you invest.
Image: FlickrCC/BY/2.0 Martina R