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  • 09 February 2016

    How Much Should You Spend on Marketing?

    What is marketing to your business? An expense or an investment? Is it perceived as a vehicle to accelerate growth or a waste of money? How does your company determine its marketing budget? Obviously, if the belief genuinely is that marketing is a waste of money, the budget should be £0.00. However, go with that and more than likely you will find that your company growth figures will mirror that: 0. It is not a coincidence that the fastest growing companies all have marketing budgets between 14% - 50% of revenue. This is not to say that marketing spend is solely responsible for company growth, but without marketing a company can’t generate exposure or promote itself and this naturally affects sales and without sales there can be no growth.

    So, having established that marketing should have a role to play in the make-up of any business, the tricky bit comes when to determine how much of a role. Helpfully, many theories exist for this but none are particularly conclusive.

    It’s 10%, right?

    You may have heard the general rule of 10% of revenue being suggested, but this does not take into account the type of business, the marketplace or what the business is trying to achieve. One theory suggests that a company should allocate at least 5% of revenue as the marketing budget in order to just maintain their status in the marketplace. Companies wishing to grow should go for 10% of revenue as their budget.

    But of course, it is not going to be as simple as that, is it?

    Consider for instance, a company launching a new product; it is not uncommon to spend much more than that to get the product off the ground. The marketplace needs to be considered as well; companies targeting aggressive expansion will spend huge amounts of money; CRM company Salesforce spends 53% of their revenue in 2014 to gain a 33% growth, equating to 16% of the total CRM industry market. So the 10% rule is too simplistic.

    How Much Can You Afford?

    Another theory takes a different slant and it asks “How much is a customer worth?” this takes the premise that you can work out how long an average customer stays with you and how much they are worth to you over that time period. The main point of this is that marketing should not be viewed as an expense to make a single sale, but rather as an investment to gain customers.

    So if you are selling £0.50 cans of pop, virtually all your campaigns will cost more per person than the actual product, but they are not just going to buy 1 can of pop, are they? And if you are selling cars, and do a good job in making sure they keep buying their cars with you, the lifetime value of that customer will be huge and so you can afford to be quite lavish with your marketing spend per person, as your Return-On-Investment (ROI) will still be massive.

    So…. How Much Then?

    Well, as we did say, none of the theories are conclusive, but we can say that a look at leading blue chip companies reveals that only one company invested less than 10% of revenue on marketing (2014 figures). This company is the world’s largest brand, Apple, and really the only company that could potentially afford to rest on its laurels a little. The average figure actually equates to 28% among the companies, a far cry from the 10% frequently quoted.

    So sadly, still no definitive answer, but when deciding what to spend, consider the marketplace;

    - Where you are in relation to your competitors?
    - Where do you want to be?
    - What is it worth to get there?
    - What are your competitors likely to do?

    As with any investment, it needs to be considered strategically, with specific goals in mind.

    Get in touch with questions or comments, we’d be happy to help!