In the ever-evolving landscape of marketing, a critical question consistently challenges businesses: How much of our revenue should be allocated to marketing? Finding the optimal balance is crucial for driving growth and staying competitive. In this blog, we'll explore the considerations and strategies behind funding your marketing endeavors and determining the right percentage of revenue to allocate.
Understanding the Landscape
Before delving into the percentage, it's essential to recognize that there is no one-size-fits-all answer. The appropriate allocation depends on various factors, including your industry, business goals, and growth stage. Established businesses might allocate a different percentage compared to startups aiming for hyper-growth.
Key Considerations
Business Goals: Align your marketing budget with your business objectives. If you're focused on brand awareness, your allocation might differ from a company aiming for direct sales. Clearly defined goals will guide your budget decisions.
Industry Benchmarks: Research industry benchmarks to gain insights into what other successful businesses in your sector are allocating to marketing. According to two recent benchmarking studies conducted by Gartner – "The State of Marketing Budget and Strategy 2022" and the "2021 Gartner Technology Marketing Benchmark Survey" – technology product companies saw an increase in the average marketing funding model from 8.5% in 2021 to 10.1% in 2022. Additional benchmarking data suggests that marketing budgets as a percentage of overall revenue for B2B firms should be at 9 - 11%, and as much as 20% for B2C companies.
The surveys further reveal that, on average, CMOs allocate 75% of the marketing budget to marketing programs and the martech stack, with approximately 25% of the budget allocated to personnel.
Growth Stage: Startups and businesses in growth phases often allocate a higher percentage to marketing to establish a strong market presence. As your brand matures, you might adjust the percentage based on the efficiency of your strategies.
Competitive Landscape: Analyze your competitors' marketing efforts. If you're in a competitive market, you may need to allocate a higher percentage to stand out and capture market share.
Digital Transformation: With the increasing significance of digital marketing, ensure your budget reflects the shift toward online channels. Investing in digital strategies is often a key component of a modern marketing budget.
Account-based Marketing: Determining the budget allocation for each account in Account-Based Marketing (ABM) is a nuanced process that depends on various factors. Unlike traditional marketing strategies where a fixed budget may be spread across broad channels, ABM involves personalized and targeted efforts for specific high-value accounts. Key considerations include the account value potential, account tiering, sales cycle complexity, personalization and the channel mix.
Strategies for Allocating Marketing Budget
Percentage of Revenue Method: A common approach is to allocate a percentage of your revenue to marketing. While there is no universal rule, many businesses allocate between 5% and 15% of their revenue. The Gartner studies provide valuable insights into the current benchmarks, indicating that technology product companies, on average, allocate 10.1% of their revenue to marketing.
Objective-Based Budgeting: Align your budget with specific marketing objectives. If you're launching a new product, your budget might be higher during the launch phase. Adjustments should be made based on the expected return on investment (ROI) for each objective.
Incremental Budgeting: Gradually increase your marketing budget as your revenue grows. This incremental approach allows you to scale your marketing efforts in tandem with your business expansion.
Conclusion
When creating your marketing strategy, you must emphasize the importance of a strategic and flexible approach to funding your marketing initiatives. Carefully assess your business context, set clear objectives, and continuously evaluate the performance of your marketing strategies. Remember, the right percentage is a dynamic figure that should adapt to the changing needs and opportunities within your market. By investing wisely and staying agile, you position your business for sustained growth in the dynamic world of marketing.
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