Money flying away

Marketers are constantly wondering how their overall budget compares to their competitors, or if they've invested in the right channels. A recent CMO survey shows that marketing expenditure across a variety of industries saw a 7.1 percent increase between 2017 to 2018, and with more martech being developed, it’s likely that trend will continue in 2019 and beyond. So how should brands allocate their marketing budget?

Marketing Budgets: How Big Is Too Big?

According to a recent study by Deloitte, marketing budgets across all sectors comprise 11 percent of the total company budget, with tech software/biotech firms using, on average, 15 percent of the overall budget.

Does this figure truly reflect the tech industry's spending? Michael Welts, CMO of Wasabi, said that it comes down to the type of company, where the company is positioned in the market, and at what stage of growth the firm is in. “A high growth 'SaaS' or 'IaaS' company will spend 25 to 30 percent or more of revenue on marketing and customer acquisition. It's really not about percent of revenue. It's instead about the ratio of customer acquisition cost (CAC) to lifetime customer value (LTV). LTV is the total profit you'll get from a customer over the term of your relationship with them, less the cost of acquiring that customer,” said Welts. She added that as long as you have a positive LTV, you should spend as much as you can afford on marketing.

While established companies with an existing market share tend to spend between 5 to 15 percent of their revenue, according to Welts, Launch Team’s Nathan Fuller, who works in sales and marketing, shared that marketing budgets in SMB tech companies spend between 1 to 6 percent of their revenue.

However, Fuller highlighted that relying on the average budget to use across the board is unrealistic. “To create a great marketing budget, one needs to take two approaches: A top-down approach, and a bottom-up approach. Budgeting top-down means looking at your goals and your expected growth points and planning accordingly, while budgeting bottom-up means looking at the actual collateral and content that you need to reach your goals. These two considerations together will allow you to make an informed and accurate marketing budget,” said Fuller.

Furthermore, brands in the software technology landscape, as mentioned by Alan Santillan, marketing specialist at G2 Crowd, must now allocate a larger marketing budget to continue competing on the SEO and content marketing front. “A ChiefMartec landscape report from mid-2018 tracked the number of marketing vendors at 7,000. From 150 to 7,000 vendors in just 8 years, the marketing technology landscape is growing faster than ever as technology companies continue to devote more and more of their budget to online marketing,” said Santillan.

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How to Calculate Your Marketing Budget

According to Jason Ball, founder of Considered Content, “arguing” over the proportion of the overall budget that gets used for marketing is “fundamentally” the wrong question. Instead, marketing should be seen as an investment. “For every dollar, pound or euro spent, the business should see multiples in return. If marketing can show it is doing this, there should never be a question about how much budget they get,” said Ball.

This viewpoint is also shared by Welts, who said, “Progressive companies look at marketing costs as investments, not as expenses. And the ROI of those investments should be considered just like any other investment the company makes.”

Welts added that brands should focus on looking into how and where they can acquire their ideal customers and maintain a strong relationship with them. “Measuring investment in marketing isn't just about splitting up the budget. It's about finding the right mix of support for finding new customers and investing in existing customers who become brand advocates and evangelists.”

Ball observed that B2C brands are moving towards zero-based budgeting, where at the start of each year, the marketing budget starts at zero. “[Zero-based budgeting] achieves a couple of things. First, it makes marketing more accountable. In doing so, it helps to lift it out of being pigeonholed as a necessary cost and into the position of a core business driver. Second, it aligns marketing with the most important objectives of the business, forcing it to take a more strategic approach,” said Ball.

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Where Should Brands Invest Their Marketing Budget?

Deciding where brands should invest their marketing budgets depends on what stage of growth the company is in, and what the primary objectives are.

For new companies, building from the ground up, Welts advised brands to invest heavily on raising brand awareness. “As a serial entrepreneur of tech companies, I'm usually tied to building new companies from the ground up which requires a significant investment in creating brand awareness, a new market category, thought leadership through earned media and key event speaking, influencer marketing through social media, and inbound marketing initiatives that tie directly to a growth marketing strategy,” said Welts.

Welts continued by adding that if a company chose to go down the reseller/distributor route, then a “significant portion of the budget should be aimed at providing "air cover" for the channel through awareness and demand-driven initiatives.”

“For companies in established and highly competitive markets, I've found disruption strategy and programs as ways to break through the noise. This takes a team of thought leaders, innovators and progressive thinkers who can continue to refresh the company's brand in a differentiated market position, staying one step ahead of the competition through disruptive thinking and innovation,” said Welts.

And finally, Santillan advised brands that they should invest their marketing budget in generating organic traffic. “With over 40 percent of revenue being captured by just organic traffic, the importance of SEO and content marketing in competing is more clear than ever. Brands should formulate their marketing budget depending on the competitiveness of their industry.”