If you want your marketing to make a difference, follow these benchmarks
One of the most frequent questions that marketing services companies get asked is "How much will our marketing budget be?” A close second is, “Are we spending the right amount for the marketing results we’re getting?”
Generally, the benchmark for a business-to-business (B2B) company is to spend 1 – 5% of target gross revenues.
However, that benchmark doesn’t apply to every company or industry. There are exceptions to every rule, such as these:
- Software and tech companies tend to spend up around 15% of revenues on marketing.
- B2B businesses in industries with tighter margins—such as distributors, or firms in more mature sectors—often spend less than 0.5%.
- Companies planning a product launch should expect to spend 5% of their Year Five target revenues—that is, what they expect to bring in five years down the line—in the first year of their marketing budget. So if you’re aiming to generate $10 million in sales five years from now, you should be spending $500,000 on marketing this year.
- Very small companies may have to spend a higher percentage of their overall sales on marketing in order to get a return. For example, if you do $1 million in annual revenues, a 1% marketing budget works out to $10,000 — probably not enough to make a dent. You may have to spend closer to, or even more than, 5% of sales. In the case of small companies, it may be difficult to work with a marketing services company that can deliver results, and it will be necessary to do marketing in-house.
- The way you position your organization factors in your budgeting as well. If you want to build a reputation as a premium company, you will need to spend more on top-tier marketing that properly reflects your brand. On the other hand, if you’re selling yourself as the most cost-effective solution, fancy marketing won’t fit your strategy.
- As a rule, companies who haven’t done marketing in the past should expect to spend more than those who have, especially in the first year when they’re getting things going.
When you want your marketing to make a difference, you have to be prepared to spend money to make it happen. But I see too many companies who are spending too much for the results they're getting, so I hope these benchmarks help you. Of course, every company is different, and you’ll need to adapt these parameters to your own reality. But these guidelines will let you know, at the very least, whether you’re spending more (or less) than you ought to be. Another option is to talk with a few marketing services firms and see what budgets they propose for your marketing. And that should help ensure you're getting the ROI you should.