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Marketing tips, observations & philosophy, plus a few rants and random musings - from those who practice, preach and teach marketing, research, advertising, public relations and business strategy.

Friday, June 02, 2006

Budget for Marketing

We face this question almost on a daily basis: "How much should I spend on marketing?"

Answers to this question tend to be vague and elusive. Further, there is not a one-size-fits-all answer or forumula. Nonetheless, I'll take a stab at an answer, since the question is so common.

I'd like to begin by re-framing the question as follows: "How much should you invest in your marketing program?" Then, I would follow with "How much do you want to grow?"

In a survey published by the American Marketing Association, those companies whose mode of selling is primarily business-to-business spent an average of 3.49% of total revenues on marketing. The AMA defines marketing as direct-selling expenses, marketing communications, marketing support, market research and telemarketing. AMA also found that the smallest companies spent more than the average.

Over the years, the Inc. 500 average for marketing budgets has hovered around 10%.
Additional detailed analysis is presented as follows:

3% of Inc 500 firms allocate <1% of total revenues for marketing
43% of Inc 500 firms allocate 1%-5% of total revenues for marketing
25% of Inc 500 firmr allocate 6%-10% of total revenues for marketing
18% of Inc 500 firms allocate 11%-20% of total revenues for marketing
9% of Inc 500 firms allocate 21%-50% of total revenues for marketing

We generally recommend that clients invest 5% of total revenues in marketing. However, if the campaign supports the launch of a new company or a new product/service, we recommend a marketing budget of 7.5% for the first year.

As an example, let's say your company has been in business for several years. Last year you recorded $1.5 million in total revenues. Your marketing budget should be at least $75,000 (five percent of $1.5M).

It's not a perfect benchmark, but it's a reasonable starting point.
[Reprinted from July 2004 - Best of Marketing Genius series summer '06.]

1 Comments:

Anonymous Steve Gershik said...

Skip,

It's so nice to see someone plant a flag in the sand and say, "Spend this much on marketing."

Can you talk more about how you arrived at your figure and how you know this is the "right" number for marketing departments?

Thanks,

Steve

10:57 AM

 

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