How to Determine Your Ideal Marketing Spend

How to Determine Your Ideal Marketing Spend

How to Determine Your Ideal Marketing Spend

They seem like simple questions:

  1. What percentage of your company’s gross revenues should be spent on marketing?
  2. How should your marketing spend break out by category?

Of course, determining your ideal marketing budget is anything but simple. If you spend too much of your gross revenue on marketing, you’ll be undermining profits and potentially attracting so much new business that it’ll be difficult to keep up with the demand you’ve generated. But aim too low and you could find your company’s growth stall or even start to contract.

At the same time, you need your budget allocated to the right mix of marketing categories to see a good return on investment. With all of these complicated factors in mind, let’s start by answering the first question: what percentage of gross revenue is ideal for your marketing budget?

The Proper Percentage

One key to success in business is to remember that marketing drives revenue. It’s possible to put the brakes on your growth or cause growth to accelerate by adjusting the percentage-of-gross-revenue for marketing.

So, what is that proper percentage? According to Gartner’s CMO Spend Survey 2018-2019, marketing expense budgets have stabilized at an average of 11.2% of company revenue in 2018.

Unfortunately, it’s hard to put too much stock in this number, because marketing budgets can vary widely depending on company size and industry. The 2017 CMO Survey found that businesses in the consumer services space spent 17.4% of revenue on marketing, while retail spent just 3.8%. However, across industries, there’s been a noticeable shift from traditional to digital media. That’s one reason why we encourage clients to focus heavily on their website and digital strategies.

The amount you spend can also vary significantly from year to year, especially when you consider that some marketing projects are one-off investments that you need in order to build a solid foundation for ongoing marketing initiatives. Your marketing campaigns will only be successful if you have already established a solid brand with a clear value proposition, built a robust and targeted website, and crafted a detailed marketing strategy to successfully reach your prospects.

When you consider the situation from this perspective, you can see why you may have to spend a little bit more on marketing upfront, but these costs are amortized over future years when you have a brand and online strategy firmly in place.  

How to Segment Your Budget

Whether you’re investing in an in-house marketing team, working with an agency partner, or some combination of the two, it’s crucial to figure out where your marketing dollars will deliver the highest return on investment (ROI).

Even your tried-and-true marketing techniques should be regularly audited to see what’s working because technology is changing at a rapid pace. Options like paid search and mobile marketing are more relevant than ever but are also seeing increased competition.

One big trend has been greater investment in marketing technology, or MarTech. According to the latest numbers, MarTech is roughly one-third of the marketing budget for most companies. While having the latest software can make a big difference to your marketing success, it’s still crucial that you work with talented marketers who can fully utilize these tools. This includes both internal and external talent.

According to the 2018-2019 CMO Spend Survey, here’s the general breakdown for where marketing spending within a company goes:

As you can tell from the top five marketing channel allocations, digital is far and away from the top priority for most marketers. Every business is different, but now you have a sense of where many marketing professionals allocate their marketing dollars. This also tracks the marketing priorities we’ve identified at Urban Link.

Business Value Through ROI

When you work with Urban Link, we’ll sit down with you to evaluate your current marketing efforts and help you determine any weaknesses in your marketing strategy.

We provide your company with brand positioning and marketing strategy services, as well as the specific ongoing marketing tactics you need to best capitalize on your brand. We’ll also pinpoint the most important metrics for your unique goals, utilizing the latest analytics tools. Our team monitors trends and activity to ensure your strategy aligns with algorithms and ranking, ensuring the greatest potential ROI.

Remember, everything starts with identifying your value proposition and then determining how to communicate it to the marketplace. That’s our specialty!

Are you ready to learn more about how to maximize your marketing dollars? Get in touch with Urban Link today.

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