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How Much Should I Budget for Marketing?

Posted September 21, 2012
2 minute read

How much should I be investing in marketing? How much of my marketing budget should be directed to online marketing vs. offline. These are questions I get asked frequently. So, recently I experienced an intersection of data from credible sources that combined go along way to answering these important questions. The two sources referenced in this post are the annual survey of CMO’s by CMOSurvey.org sponsored by the American Marketing Association and the Duke University Fuqua School of Business; and a recent report by Forrester Research Group about interactive marketing trends and predictions.

The CMO survey contains information about marketing budgets as a percent to a firm's revenue and draws distinctions between size of firm, firms in the B2B space vs. B2C, and those selling services vs. products. In the chart below you’ll see all responses generally fall in the 9-14% of revenue range, with those selling services slightly higher than product sellers. (See chart below). It is extremely important to note that these percentages represent the total marketing investment, not just advertising spend – things like marketing staffs, customer relationship management, investments paid to agencies and other outside suppliers, advertising costs, etc.

Taking this a step further, the Forrester report below provides trend information about where marketing budgets are being applied, today and into the future, and draws a nice distinction between online and offline allocations as well as sub-sections for each. Not surprisingly, the Forrester survey shows a shifting of marketing budget offline to online over the next few years and states that the online share of marketing spend in 2011 was about 19%. Their survey predicts marketing spend online will grow to about 35% of total budget by 2016.

The big growth trends will be in mobile and social with 38% and 26% respective annual rates of growth over the next few years. However, search engine marketing and online display marketing will still represent nearly 80% of online marketing dollars in 2016.

How to Use this Information

The best use of this information is as a benchmark to what your firm is doing. Let's say you are a provider of services direct to the consumer market and your firm generates $10 million a year in revenue. The CMO Survey suggests you should be spending 16% based on sector and 17% based on size. Let's be conservative and set total marketing spend at 16% of revenue ($10m) or $1.6 million.

Now let's say you spend $500k in salaries and benefits for your sales and marketing teams, which leaves $1.1m for marketing services and advertising. The Forrester survey suggests your offline and online budgets should be as follows (these are gross estimates)

  • Offline (~70% or about $770k) - Broadcast (TV, Radio, etc.), print and outdoor.
  • Online (~30% or about $330k) - allocated as follows:
  • Search (~45% or about $150k)
  • Online display (~35% or about $115k)
  • Mobile (~10% or about $33k)
  • Social (~6% or about $20k)
  • Email (~3% or about $10k)

It is very important to note that these are only guidelines. Other factors affecting marketing budgets are elements such as market competition, the firm's profitability and financial structure, whether a firm is in its growth phase, how aggressive a firm wants to gain market share and the like.

Topics Advertising, Internet Marketing, Online Marketing, Digital Marketing

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