How much of your revenue should go to marketing?
Mountain View

Written by Bartek Bezemer

I want to help you get more out of your online marketing by giving you insider tips and combine them with market trends to help you better reach your target audience.

May 2, 2020

The marketing budget can result in heated debates within a company. How much should you spend on marketing from your overall budget?

One of the most interesting marketing surveys done across a multitude one of industries is the CMO Survey conducted by Deloitte, which gives fellow marketers a clear insight into how much companies allocate their budget towards marketing. The survey of February 2020 asked 265 top marketers at for-profit companies to give an insight into their spending. 

I want to break down this report with you to help you get a better grasp on how to formulate a realistic marketing budget for your own company and manage your own expectations. Even the insights version of the report is 75 pages, so I only want to look at the most relevant aspects of the different marketing spending. 

Marketing spending is 11.3% of overall company budget

In February 2020 the marketing budget was 11.3% of the overall company budget. A slight increase compared to February 2018 where the marketing budget was 11.1% of the total company budget. The peak of marketing spending was in February 2016 with 12.1% the highest since the survey recording in February 2011. 

Across Industries a more contrasting view appears:

SectorMarketing spending of overall budget
B2B product10.4%
B2B services9.9%
B2C product20.0%
B2C services8.2%

The above comparison shows some pretty great differences among sectors. I can only imagine that B2C products have lower customer loyalty and customers need to be attracted to maintain growth. From experience I know that B2B customers tend to stick around for longer as the aquicistion journey is manby times longer and more complex with multiple parties within the company involved. 

Note that overall budget does not equal revenue, which is an interesting metric. In February 2020 the marketing budget accounted for 8.6% of the company revenue, with a peak in February 2014 at 9.3%. These figures seem in stark comparison to companies such as Salesforce who spend 46% of their revenue on marketing, Mindbody 39% got sales and marketing activities,  Tableau investing 51% and Oracle 22%. Google and Microsoft gravitate more towards the 9.3% with Microsoft spending 15% of their revenue on marketing and sales, Google 11.9%. I expect that the revenue is so high of the latter two, that spending more would be ludacris and overkill for the growth they are already realizing. 

Social media spending is 13.3% of total marketing budget

When we zoom in on the actual spending within the budget we that social media is growing rapidly and according to respondents is expected to grow with 62% the marketing budget over 5 years. Social media marketing only took up 3.5% in August 2009 and grew rapidly to 13.3% in February 2020. The importance of social media marketing cannot be understanded as the spend on social media is increasing and the algorithms for targeting are improving. 

When zooming in on B2B compared to B2C we see that the current and projected budgets are pretty equally divided.

SectorSpend within marketing budgetProjection within marketing budget over 5 years
B2B product11.2%19.7%
B2B services13.6%20.7%
B2C product14.2%21.9%
B2C services17.2%26.9%

B2C services will still be the major spender on social media compared to other sectors. Social media is becoming an ever more important part of the marketing budget, but I’ll add a side note to social media as measuring the ROI of social media has proven notoriously difficult the past couple of years.  

According to the survey 32.4% of the respondents were unable to show the impact of social media in February 2020. While this number is lower compared to February 2017 with 43.3% being unable to tell, it is decreasing steadily.

This can probably be attributed to improved marketing analytics, which in February 2020 was at 6.1% of the total marketing budget, but is expected to rise 9.5% the coming 3 years. As your company grows, departments get more people and country borders fade, the need for optimized web analytics becomes a growing need. Over the years I’ve also seen that a lot of departments maintain their own analytics tools, making it really difficult to create a single source of truth for revenue data. An overarching analytics tool helps a company grow. 

Despite the expected growth of marketing budget allocated to analytics, the amount of times marketing analytics is used for decision making is decreasing for two years in a row. In February 2013 accounting for 30.4%, peaking in February 2019 at 43.5% and decreasing to  37.%. I wonder why this is happening, as more and more weight is being put on making informed business decisions. 

4.7% of the marketing budget is spend on education

One of the more overlooked parts of the marketing budget is education. More mature companies will have this in their budgets, but oftentimes it’s part of the HR budget.In February 2020 4.7% of the marketing budget was allocated to education, lower than the August 19 where 5.6% of the budget was used for training and development. 

Creating a well educated team will help a company find new creative ways to improve the current marketing strategy, so I can only encourage this. One of the pitfalls are the different conditions that are attached to education budgets, such repayment of courses when leaving within a certain time period. This can backfire at a company as employees will not be encouraged to find new personal growth opportunities. It’s also important you find courses that elevate the whole team to another level and actually attribute to the skill gap present in your team. 

How education budgets are spent is considerably different among B2B and B2C companies. In the below table we can see this difference.

SectorSpend within marketing budget
B2B product5.0%
B2B services5.0%
B2C product3.6%
B2C services4.4%

The difference is less significant compared to the total company budget, but we can see that B2B spends more educating its employees than B2C companies. 

What I did miss from the survey was the average spending across different stages of the lifecycle of a company. Do you need to spend more in the beginning and decrease the spending or is it gradually increasing over time? In an opinion piece on WordStream, new companies should spend up about 12% to 20% of their gross revenue on marketing. We see that is not a far stretch from what established companies are spending on marketing. 

Summary

Your marketing budget should be about 8% of your revenue, which is in tune with the largest marketing spenders. Note that the difference across industries is large and requires you to keep adjusting to keep pace with your competitors. It’s very tempting to look at what you are willing to spend and being outdone by your competitors in the long term as they gain momentum.  

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