David Lee - Sep 27, 2017

How much should I spend on marketing? (Updated for 2020)

As part of your annual budgeting, planning and forecasting process, one of the key items that you should be reviewing is your marketing budget. This article will help you understand whether you are under or over investing compared to your peers and competitors. (Updated for 2020)

The Importance of Digital Marketing

There is no doubt that digital marketing spend is on the rise due to several factors:

  • Millennials are moving into positions of influencers and decision-makers. 
  • The shift from traditional marketing to digital marketing for all services continues.
  • 62% of B2B Buyers can finalize vendor short lists based only on digital content. 
  • According to a recent Gartner study, for 2019-2020, marketing represents about 10% of company revenue.

To help determine whether you are allocating the appropriate funds to the activities that allow you to acquire new clients and increase your sales, this article is organized into three sections:

  1. Marketing spend as a percentage of revenue
  2. Digital marketing activities
  3. Allocating the correct amount to specific digital marketing activities

Marketing Spend as a Percentage of Revenue

This is one of the industry’s standard metrics because it can be used to measure and compare your marketing spend to that of companies of different industries and sizes. However, depending on the source, these figures can be very different.

By Revenue

Gartner has published their metric of 10.5%. However, it’s important to recognize that Gartner research is targeted towards companies who have over $250 million in sales per year.

The CMO Survey has also published their metric of 7.6% of revenue and their sample was a bit more diverse with 27% of the companies with less than $25 million in sales per year.

By Business Type

The 2020 CMO Survey has a different breakdown across different business types:

  • B2B Products: 9.0%
  • B2B Services: 7.9%
  • B2C Products: 11.9%
  • B2C Services: 4.8%

The Gartner report shows a slightly different breakdown:

  • B2B Services: 10.0%
  • B2B Manufacturing: 10.4%
  • B2C Direct Sales: 10.4%
  • B2C Indirect Sales: 10.9%

 

Your actual spend on marketing will be very dependent on not just your revenue size, business type or industry. Other factors that will influence this figure to be larger include: 

  • If your company is in a growth phase and you are actively looking to increase sales
  • If your company is in a highly competitive industry
  • If your company views digital marketing as a strategy for company growth.
The key take away is to make sure that you set a marketing budget and use the above table to help you understand if you are over or under investing on marketing.

Summary Table

To help you determine if you are under or over investing in marketing, we created a summary table below for different levels of investment.

Marketing Budget.png

What are the Components of Digital Marketing?

This is actually a difficult question to answer because each company classifies their budget differently.

For the purposes of this article, we used the Gartner Study because it breaks down marketing budgets into twelve different categories including digital, offline and customer analytics.

Marketing Budget

Source: Gartner 

A few key findings:

  • Digital Marketing totaled 73% of the the marketing budget.
  • Web design alone is 22% of the marketing budget (we combined the two categories of Web and digital commerce because they are closely related).

What Should you be Spending on Digital Marketing?

We used 10% for this illustration. Start out with this chart to map out your marketing and digital marketing budget.

These are general guidelines and the actual allocation of your digital marketing budget will depend on if you are considering redesigning your website—in which case you may need to devote more funds to web design this year. Or if you are launching a new product or service, you may want to focus on top-of-the-funnel digital and social advertising.

Digital Marketing Budget

Summary

In today’s online world, marketing isn’t just the “cost of doing business” and should not be thought of as a “cost center.”

Instead, marketing is a profit center. By allocating the right amount of resources to your website and associated marketing efforts, you can build a process and a machine that works for you 24 hours a day, 7 days a week to bring your sales team leads and prospects who are interested in doing business with you.

 


Curious to know what marketing metrics you should really care about?

Download our marketing metrics calculator and starting measuring and tracking the ROI of your marketing department.

Learn How to Calculate Marketing Metrics That Matter

 

Written by David Lee

As the founder of Do What Works, my goal is to take the best practices and lessons I learned from working with Fortune 500 companies and bring them to the mid-size market and help our clients grow their business.