We’re inching closer to the end of the year, and for many companies, that means two things: year-end reconciliation and 2018 planning and budgeting. Calysto has put together some terrific resources for how to build your Annual Marketing Plan, and provided a checklist of the information you’ll need to gather before starting. Now it’s time to talk turkey: How are you going to budget for all the items you have in your Annual Marketing Plan?
Marketing budgets vary from company to company depending on a variety of factors, including company size, whether they are public or private, total revenue, and so on. As a general rule of thumb, companies should expect to spend 10% to 20% of their total revenue (not profit) on marketing. Small companies may spend less, larger companies more (or vice versa), but that 10% to 20% is the range most companies find provides a good balance of activities and the highest ROI.
To figure out what percentage of revenue is right for your organization, ask yourself these questions:
Typically, the larger the company, the larger the percentage of revenue that should be going towards their marketing budget. Large, well-established companies in highly competitive industries may spend more than 20% of revenue on marketing when warranted. Or they may spend less, depending on market conditions and the competitive landscape.
Midsize companies generally follow the same path, but may need to spend more to gain a leg up on the competition or create market leadership. Here, we recommend companies spend 15% to 18% of revenue on marketing. Small companies and start-ups have a slightly different formula, since they have little or no sales—they may have to map out a more discrete marketing plan to ensure they have adequate activities to meet their goals. They need to have conversations with their investors on what that investment in marketing should look like.
Your company’s overall business goals can make all the difference. Whether you want to launch the company, or a new strategy or product, increase sales, cultivate thought leadership or maintain a market leader position will all affect how much you need to spend on marketing, and what tactics you’ll need.
For many marketers, securing enough budget is their number one marketing challenge. To secure enough budget to meet your marketing and business goals means you have to prove why you need to spend what you’re asking for. That’s why an Annual Marketing Plan is so important to develop. Just like you would never hand over $20 to a child asking for money without asking them to justify why they need that much and what they will spend it on, nor will your CFO blindly approve a budget without understanding how it will be spent and what the expected ROI is.
The chart below shows marketing mix percentages that we recommend for B2B technology companies, and presents an example of how an organization with revenue of $10 million would distribute the marketing budget.
For your company, simply adjust the chart with your revenue target and multiply it by the percentage of revenue you expect to spend on marketing based on the marketing and business goals laid out in your Annual Marketing Plan. You can personalize it based on known elements, for example, you may decide that your company will not conduct any direct marketing in 2018. Or you may allocate more to Analyst Relations because you know your product category will require analyst endorsement and more time will need to be spent briefing analysts.
The chart is not a perfect science, but it gives you a starting point, with room to make adjustments based on your unique business needs. Regardless of whether your annual revenue is $100,000, $1 million or $1 billion, you can still apply this formula to determine how much to attribute to marketing.
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