How much do we spend on marketing?

In the mid 1990’s, Steve Jobs took a company on the brink of extinction and turned it into the largest and most successful brand in the world. The Apple of the 1990’s looks a whole lot shinier today, sitting pretty at the top of Forbes most valuable brands list for the seventh year in a row. So, how did Jobs do it? Steve jobs knew the importance of a strong brand. He understood the vital role marketing plays in a company’s success, which explains why Apple and many of the most successful companies spend more on marketing and sales than they do on research and development.

Marketing Matters

Determining the effect of marketing on a company’s growth is not black and white. There are umpteen factors that successfully correlate to create a successful and growing business. However, poor marketing can lead to a company getting little or even negative exposure. In 2016-17, leading companies like MindBody, Salesforce, Bottomline Technologies, Tableau, Oracle and Johnson & Johnson had marketing and sales budgets that were greater than 20% of revenue, some spending close to 50%. Its no surprise that all of these companies also grew year-over-year.

Is 10% the Magic Number?

Most marketing professionals today would likely say that 10% of revenue is ideal for marketing the firm's services, however, this might seem to be more of an arbitrary number. As budgets continue to climb for the third year in a row, many companies — especially those with more than $5 billion in revenue — are abandoning the 10% rule in favor of bigger budgets, with a heavy focus on digital marketing.

According to a 2016-2017 Gartner Research study, companies are now spending roughly 12% of annual revenue on overall marketing. The study concluded that “larger companies (>$5 billion revenue) spend 13% of revenue on marketing, while smaller companies ($250 million to $500 million revenue) spend roughly 10% of annual revenue.”

A 2017 CMO survey published by the American Marketing Association and Duke University pegged the numbers a bit lower, reporting that across all industries businesses spend 11.4% of budget on marketing and only 6.9% of revenue on marketing. Of course, these figures vary wildly when you drill down into each industry.

• Percent of revenue by industry:

• Education: 18.5%

• Consumer services: 17.4%

• Transportation: 11.2%

• Consumer Packaged Goods: 11%

• Service Consulting: 9.4%

• Tech/Software/Biotech: 8.5%

• Communications/Media: 6.6%

• Healthcare: 6.2%

• Banking/Finance/Insurance: 3.9%

• Retail/Wholesale: 3.8%

• Energy: 2.2%

• Mining/Construction: 2%

So, while the 10% number may be right for some businesses, it is definitely not a one-size-fits-all figure.

References:

1. https://vtldesign.com/digital-marketing/content-marketing-strategy/percent-of-revenue-spent-on-marketing-sales/

2. https://cmosurvey.org/wp-content/uploads/sites/15/2017/08/The_CMO_Survey-Highlights_and_Insights-Aug-2017.pdf

3. https://cmo.deloitte.com/xc/en/pages/articles/cmo-survey.html

4. https://boylanpoint.com/social-media-marketing/

5. https://www.entrepreneur.com/article/299335