November and December is not only known for the holiday season, but also for budget planning for the upcoming year. One of the challenges small- to medium-sized companies face is how much to spend on marketing. You know that marketing is important, so the question becomes how much investment to make when it can be difficult to pin down a concrete return on investment (ROI).
While TREW Marketing does not have a hard and fast rule, our past research has shown a good starting point for B2B technology companies is 6% to 14% of forecasted sales. From there, that number will need to be fine-tuned based on several considerations:
The higher your margins are, the greater your ability to reinvest in the company. However, even businesses like computer manufacturers, who tend to have razor thin margins, must still invest in marketing to be competitive in the marketplace.
2) Products Versus Services
Your core services may not change very frequently, and therefore once the foundational marketing material is created, less updating may be needed from year to year. In contrast, every time you release or make a major update to a product, fresh content – such as news releases, landing pages, data sheets, and demos – must be created and maintained.
3) Foundational Marketing Investments
An increase in budget may be required for foundational marketing projects. For example, let’s say your company typically needs a marketing budget of 6% gross revenue to meet sales targets. However, there may be a year where you need to spend 7-8% in order to pay for a major marketing project, such as a website redesign or a move to a new CRM platform. These foundational projects will benefit the business for several years to come, making them a longer-term investment.
4) Balance Between Sales and Marketing
Companies commonly group sales and marketing together in the same budget. If this is the case for you, it is important to decide who gets how much, and consider where the big versus incremental investments should be. For example, this year should you double the sales force or double down on marketing efforts to launch a new eCommerce system? If you don’t strike the right balance, you may have lots of sales representatives with no leads or tons of leads with not enough salespeople to follow up on them.
5) Healthy Versus Slow Economy
Many people have asked if these budgetary guidelines still hold true in a recession, and the reality is that many companies have dialed down their spending in reaction to tough economic times. In 2011, TREW Marketing saw small companies drop their spending to an average of 3% of sales, whereas medium-sized businesses maintained an average of 8% of sales.
MarketingSherpa has collected data showing that smaller businesses typically spend a greater percentage on marketing than larger companies, but during recent years, small companies have been going into survival mode and aggressively cutting expenses to keep their businesses afloat. However, “marketing is an asset that drives revenue, not a liability that simply incurs costs,” says Inbound Sales Network. Returns may not be immediate, so a long-term, consistent effort to market your company and its offerings is required even during downtimes to make sure customers will still choose you when business picks up again.
In conclusion, make smart decisions and prioritize your marketing dollars to make the greatest impact. For more information on which activities will get the most bang for your buck, download our free Smart Marketing for Engineers e-book.