As part of your annual budgeting, planning and forecasting process, one of the key items that you should be reviewing is your marketing budget. This article will help you understand whether you are overspending or underspending on marketing compared to your peers and competitors.
The Importance of Digital Marketing
There is no doubt that digital marketing spend is on the rise due to several factors:
- Millennials are moving into positions of influencers and decision-makers.
- The shift from traditional marketing to digital marketing for all services continues.
- Companies are allocating more resources to marketing, climbing to 12% of revenue vs 11% from the previous year.
To help determine whether you are allocating the appropriate funds to the activities that allow you to acquire new clients and increase your sales, this article is organized into three sections:
- Marketing spend as a percentage of revenue
- Digital marketing activities
- Allocating the correct amount to specific digital marketing activities
Marketing Spend as a Percentage of Revenue
This is one of the industry’s standard metrics because it can be used to measure and compare your marketing spend to that of companies of different industries and sizes. However, depending on the source, these figures can be very different.
If your company has less than $5 million in revenue, then according to the SBA, a good general rule is that between 7% and 8% of your revenue should be spent on marketing.
Gartner has also published their metric of 10% to 13%. However, it’s important to recognize that Gartner research is targeted towards companies who have over $250 million in sales per year.
By Business Type
The 2017 CMO Survey has a different breakdown across different business types:
- B2B Products: 6.4%
- B2B Services: 6.8%
- B2C Products: 8.6%
- B2C Services: 7.3%
The CMO Survey and Gartner studies also broke down marketing spend by industry, but had some very different figures.
Your actual spend on marketing will be very dependent on not just your revenue size, business type or indsutry. Other factors that will influence this figure to be larger include:
- If your company is in a growth phase and you are actively looking to increase sales
- If your company is in a highly competitive industry
- If you company views digital marketing as a strategy for company growth.
Becuase the figures vary so much by industry, we decided to use the figures from the SBA and Garnter to create the summary table below.
What are the Components of Digital Marketing?
This is actually a difficult question to answer because each company classifies their budget differently. Also, depending on the source, the data may be defined differently or a little skewed.
For example, a recent study from the Content Marketing Institute puts content marketing spend at 29% of total budget, while Gartner’s research is 6%.
For the purposes of this article, we used the Gartner Study because it breaks down marketing budgets into fourteen different categories including digitial, offline and customer analytics.
Out of the fourteen categories, seven fell squarely in the digital marketing category:
- Digital commerce
- Digital advertising
- Mobile marketing
- Social marketing
- Email marketing
- Content creation
A few key findings:
- These seven digital marketing categories total 45% of the marketing budget.
- Web design alone is 17% of the marketing budget (we combined the two categories of Web and digital commerce because they are closely related).
- Marketing analytics and customer intelligence activities accounted for 21% of the spend.
- Non-digital marketing activities, like event marketing, offline advertising and partner marketing, represented 20%.
What Should you be Spending on Digital Marketing?
We used a conservative figure of 7% for this illustration. Start out with this chart to map out your marketing and digital marketing budget.
These are general guidelines and the actual allocation of your digital marketing budget will depend on if you are considering redesigning your website—in which case you may need to devote more funds to web design this year. Or if you are launching a new product or service, you may want to focus on top-of-the-funnel digital and social advertising.
In today’s online world, marketing isn’t just the “cost of doing business” and should not be thought of as a “cost center.”
Instead, marketing is a profit center. By allocating the right amount of resources to your website and associated marketing efforts, you can build a process and a machine that works for you 24 hours a day, 7 days a week to bring your sales team leads and prospects who are interested in doing business with you.
Curious to know what marketing metrics you should really care about?
Download our marketing metrics calculator and starting measuring and tracking the ROI of your marketing department.