How Much Should My Business Spend on Marketing?

All too often marketing is seen as a luxury. Companies are quick to invest in product development, infrastructure, capacity and sales in order to grow. But when it comes to marketing, many business leaders are quick to hold back because they perceive it as less important to the bottom line.

How this way of thinking has endured is puzzling to me. Think about some of the most admired and successful companies in modern times and it’s difficult to imagine them apart from their brand marketing investments. Apple, Southwest, Nike, NFL, Verizon, State Farm and Coke are powerhouse brands in part because they invest in marketing as a core business practice.

Additionally, the convergence of technology, data and marketing has fueled remarkable advances in the ability to quantify marketing investment. High-level indices have been replaced with accurate and detailed analytics to validate return on investment.

So how do we reverse a mindset that undervalues marketing investment? One way is to start with industry benchmarks and build our business cases from there.

The most common way to quantify marketing investment is by percentage of revenue. Based on several published studies that DKY reviewed, industry data supports that:

• Businesses should invest between 3-9% of their revenue on marketing
• 2% is the low-end and up to 20% can be justified

Here’s a quick reference chart for the 3-9% of revenue benchmark:

Factors that push marketing investment to the higher-end of the benchmark range:

• If you are in a services or retail business
• If you are a smaller, or start-up business
• If your market is highly competitive
• If your innovation window is short
• If your sales channel is challenging/weak
• If you are in a high-margin business

Factors that push marketing investment to the lower-end of the benchmark range:

• If you are in an industrial/manufacturing business
• If you are a larger, established business
• If your sales cycle is complex/lengthy
• If your sales channel is strong
• If you are in a low-margin business

Based on this benchmark, you may be feeling good about your marketing budget. But my guess is that many organizations are operating well below 3%, and there are deeply entrenched practices that are holding budgets at bay. Perhaps it’s time for a change.

Unless we step up and challenge outdated thinking about the value of marketing, we are destined to work in budget environments where we don’t have the resources to contribute in meaningful ways. Take courage from business author and guru Peter Drucker who underscores the value of marketing without reservation:

“Because it is its purpose to create a customer, any business enterprise has two – and only these two – basic functions: marketing and innovation.”

You may have to start small, but start somewhere and build toward great.

Sources: U.S. Small Business Administration, Marketing Sherpa, Inc., CMO Council