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With the economy effectively shut down in many parts of the world, some companies are questioning the allocation of their budgets going forward. While some companies, like Google, have slashed their budgets by half, another study by Influencer Marketing Hub found that one in four companies are planning to increase their marketing budget during coronavirus.

So, how do businesses decide how to allocate their funds, especially during a crisis? How much are business leaders allocating to marketing and in which areas of marketing specifically? 

While marketing budget allocations will likely vary across each industry and vertical, there are also differences related to the company’s stage of development. Lets take a look.

Low Growth Companies

Matthew Turner, founder of Boston Turner Group says that he is often asked about marketing as a percentage of revenue, EBITDA, sales, or another measure, but believes it should vary depending on the growth of the company.

“If you are a low-to-moderate growth company,” he said, “you should budget 5%-10% of gross margin.” Any less than 5% of gross margin could lead to pipeline shortages, awareness issues and falling behind the competition. 

High Growth Companies

For hyper-growth companies, especially those in the pre-revenue phase, it’s not easy to decide how much to invest in marketing. “In their first year of revenue,” Turner said, “Salesforce spent 500% of their revenue on sales and marketing expenditures knowing that it was more important to their long-term valuation to build a strong base of recurring revenue than it was to build a small amount of EBITDA in that stage of their lifecycle.” Marketing budgets, therefore, will vary widely depending on the goals and stage of development of an organization.

Related Article: Tips to Better Manage Your Marketing Budget 

The Marketing Budget Breakdown

Along with the difficult considerations for investing in marketing, companies are tasked with choosing from a wide range of marketing activities when allocating their budget as well.

Content & SEO

“Fifty percent of the budget is allocated to producing quality content (30% written, 20% audio & visual) that helps our customers solve their problems,” revealed Sim Li, co-founder & CMO of HUSTLR. She believes it’s crucial to be there for customers when they search for solutions on Google and YouTube. Many marketing leaders believe content and SEO can offer the best ROI in terms of awareness and lead generation.

“We’re mostly investing in content marketing and SEO,” added Dennis Vu, CEO and co-founder of Ringblaze. He said with just a little investment in this, they’re seeing more visitors, backlinks, customers and domain authority in just one month. “While most people will tell you that it takes months to see the ROI from them,” he continued, “we’ve been able to see results as early as one month.”

Technology

For Li, customer-facing technology is also crucial for marketing teams to consider. “We would allocate 30% on software that assists in providing a world-class experience to our customers,” she explained, “for example, a software that allows the customer to make payment smoothly without the hassle.” Many companies also choose to invest in internal marketing technology that ultimately leads to better customer experiences as well.

Experimental

Li also believes it’s beneficial to save around 5% of the marketing budget for experimental projects. Especially with new product launches with no supporting data, testing out new paid advertising campaigns or new marketing tactics is useful for seeing what works and what doesn’t. “Then, we will use that as a guide for our next campaign,” she said, “if our efforts show a positive return, we would double down on what works.”

When Should These Allocations Change?

“Unfortunately, the problem behind these kinds of questions is in believing that marketing is an expense and not an investment,” Turner said. Allocating funds to marketing without having specific goals is often a waste, which is often revenue but could also be awareness, freemium registrations, or other non-revenue goals. But Turner added, “Without a well-thought marketing plan, you might do more damage than good.”

For many companies, it’s best to set realistic goals and start small before allocating too much to marketing. “We wanted to give it a try to see what we could accomplish with a small budget before ramping it up,” Vu said. They’ve been dedicating 10% of their revenue to marketing because their SaaS product is new, but expect this to change. “Based on the results we have so far, we plan on increasing our marketing budget in the months to come.”

While many companies have put their marketing efforts on hold to weather the current crisis, Kevin Miller, founder & CEO of The Word Counter has a different approach. “I have determined that, specifically based on the current economic environment, while others pull back, we go in and take advantage of the CPM discount.” There’s clearly no one-size-fits-all when it comes to marketing budgets, and now more than ever it is necessary for businesses to find out what works for them