A Data-Based Approach to Setting Marketing Budgets for 2020

By looking at several studies on marketing budgets, we find out how much companies of different sizes and in different industries are spending on marketing.

There are many factors that affect the ideal marketing budget for any individual company, but the core principles that we find are:

  • The average large company spends around 10% of gross revenue on marketing.
  • As a percentage of revenues, small companies tend to spend more (25% of their revenue), while larger companies tend to spend less (7% of their revenue).
  • Companies operating in competitive, consumer-facing industries tend to spend more, while companies operating in more stable, B2B industries tend to spend less.
  • The budget is often split evenly between four ways:
    • Internal employee time
    • Ad buying
    • Agency services
    • Technology

 

Using Data to Set a Marketing Budget for Your Company

What’s the right marketing budget for your company?

The most truthful answer is “it depends.” It depends on your company, your market, your consumers, your goals for growth and your competitors. It probably also depends on the current astral phase of Jupiter, whether a butterfly has recently flapped its wings in Hong Kong, and how many points the stock market will grow or dip three Tuesdays from next Saturday.

But “it depends” isn’t a very satisfying or helpful answer.

A more helpful answer is to start with the question: “What’s a typical marketing budget for companies like mine?” That’s a question we can answer with quantitative data. Then, once you’ve answered that question, you can customize your marketing budget with the “it depends” factors.

 

Where the Data Comes From

There are three primary reports we’ll look at for data to drive our conclusions: Gartner’s “The Annual CMO Spend Survey 2019-2020,” Deloitte’s “The CMO Survey, August 2019” and Growth Marketing Stage’s “Marketing Budgets 2019-2020.

Gartner’s and Deloitte’s data are often taken as a de facto standard for industry research. Growth Marketing Stage’s report is less established but offers some insights that the other two don’t dive into.

 

Marketing Budgets Average Around 10% of Total Revenue

Gartner’s survey reported an average of 10.5% of revenue spent on marketing, while Deloitte’s reported 9.8% of overall revenue spent on marketing.

Those two values average out to 10.15%, close enough for us to say that most large companies spend around 10% on marketing.

To think of it in dollar terms, a company with $2 million in revenue would spend $200K on marketing, a company with $20 million in revenue would spend $2 million on marketing, and so on.

Across the board, our data points also show that companies expect to have their marketing budgets grow. Deloitte showed 8.7% growth over the past year, and while Gartner’s study pointed to a slight decrease in budgets over the past year, it also showed that CMOs expect increased budgets moving into 2020.

 

Smaller Companies Spend a Bigger Percentage of Revenue

To be competitive, it appears that smaller companies have to spend more of their income on marketing than larger companies.

The Growth Marketing Stage survey broke down marketing budgets by company size, and found that small companies (with 1–20 employees) spend 3.5x more of their revenue on marketing than companies with over 1,000 employees.

 

 

More Competitive Industries Require Bigger Marketing Budgets

As you might imagine, not all industries are equal when it comes to marketing budgets.

While none of the specific studies that we’re looking at with the most recent year’s data break out spending by industry, Deloitte’s 2017 version of their survey did. It found a significant variance in spending by industry, all the way from 24% of revenue spent on marketing in the consumer packaged goods industry down to just 4% in the energy sector.

 

 

B2B vs. B2C Marketing Budgets

There’s a perception that B2B companies don’t need to spend on marketing, but that perception isn’t supported by the data. Deloitte’s 2019 data breaks down spending by both B2B vs. B2C, as well as by companies that offer products vs. services.

On the product side, the difference in spending between B2B and B2C is just over 1%, while on the service side, it’s just under 7%.

Sure, B2B companies tend to spend a bit less of their overall revenue on marketing, but the difference is far less than many outsiders would assume.

 

 

How Marketing Budgets Are Allocated

There are lots of ways to look at how companies are spending their marketing dollars, but Gartner’s survey gives a helpful overview. Every year, they track the percentage of budgets allocated to four large “buckets,” and over the last few years, those buckets have been pretty consistent.

 

 

It’s worth taking a closer look into each of these areas.

Agency Spend

Agency refers to a mix of creative, strategic and media buying services provided by an ad agency (the type of things we do).

Martech Spend

Martech is just a made-up word that refers to advertising technology. Our own experience here is that while spending a quarter of your budget on marketing technology is a good idea for larger corporations, it’s probably overkill for many smaller and midsize corporations.

Gartner’s data is skewed toward large corporations; 74% of their respondents are from organizations with more than $1 billion in revenue. When you’re spending $100 million on marketing every year, it makes sense to spend heavily on advanced technology to help you get the most out of your marketing budget. When you’re spending, say, $1 million or less, investing a quarter of your budget in marketing technology is probably overkill, and would cannibalize from other areas with a stronger ROI.

Media Spend

Media refers to paid media placements. This could be anything from PPC advertising to sponsored editorial content, social media outreach and of course traditional media like print, outdoor and broadcast advertising.

Labor

Labor most commonly refers to internal staff costs for marketing, though in some cases these labor costs could be external. At our agency, we offer an “instant marketing department” program that lets our employees fill roles typically handled by internal personnel. This lets our clients rapidly grow their marketing bandwidth without having to add employees or divert existing employees from their responsibilities.

 

Adding in “It Depends”

This data will give you a solid starting point for what companies like yours are spending on marketing. But it’s just a starting point. Once you’ve gotten there, it’s time to customize your budget to your needs and goals.

Appetite for Growth

What are your plans and opportunities for growth? If you want to just maintain your company’s position in the market, you can probably pick a budget that puts you toward the lower end of the scale. If you’re hoping to grow rapidly, plan to set your marketing budget toward the higher end of the scale.

Competition

We see competition affecting marketing budgets in two big ways. In crowded, heavily competitive markets, spending more is a requirement for participation. Remember: The numbers we’re looking at are just averages. If you’re in consumer goods, 25% of total revenue might be the minimum budget just to stay competitive. If you want to outpace the competition, you might well need to spend more.

On the opportunity side, spending a bit more on marketing can often help smaller companies to rapidly capture an outsized portion of the marketplace. If your larger competitors are getting complacent, a targeted larger spend can often help you take some of their market share.

Your Goals

Any marketing budget or plan should start with goals, and then be formed to support those goals. We start all our client relationships by developing a goal-oriented marketing strategy in cooperation with our clients. It’s a great practice for setting internal marketing budgets as well.

Usually, bigger goals require bigger budgets, while more modest goals can be effectively supported with more modest budgets. Whatever the scope of your goals, they’ll be better met by a budget designed with them in mind.

 

Implement, Review and Adjust

Marketing budgets aren’t static things. They should respond to opportunity, look for efficiencies and be weighed in the balance of ROI . Once you’ve set a budget, keep track of your performance and use the data you build to adjust and find improvement.
Finally, remember that marketing is an investment. Like any investment, it can take some time to see results, but if you invest wisely, those results can be tremendous.