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%.It's 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