How Much Money should a Brand Spend on Marketing & Advertising?
Posted: July 9, 2019 | Author: Ankit Sahu
This article provides information that can guide you about how to shape your marketing budget and where to invest your marketing bills.
In this article you can find the following:
- How much are companies spending on marketing?
- Which marketing channels are resulting in maximum ROI?
- What should be your plan of action?
The marketing spend trend since last few years
According to the Harvard business review. 7-15% in marketing spend is ideal (If you have incoming revenue). However, one of the difficulties in providing a general marketing budget recommendation is that not all companies are consistent with what they include in their advertising spend.
As you see above, marketing spends have varied from 2.4% to 18.9% depending on the industry. We have segregated this data into 4 simple categories which best describes the average marketing spend in categories (see chart 1.2).
Marketing spends as a percentage of revenue tends to fluctuate but generally hovers between 6.5% to 8.5%, with the highest percentage again coming from B2C service companies followed by B2C products.
Related Read - Why is it Important to Have a Memorable Brand Identity?
Figures and Facts: Digital Marketing & ROI
The figures clearly show what should be your average spending on marketing in the coming years. Now the big question is “Which marketing channels are resulting in maximum ROI?”
A 2018 study by Gartner reported that marketing leaders planned to spend 29% of their marketing budget on marketing technology (up from 22% in 2017), making it the single largest area of investment for marketers, followed by labour, agencies and paid media.
The world is shifting from traditional media channels to new mediums. Digital spend is increasing and so is the measurable ROI.
Some shocking proofs come from the reports by Forrester Research and eMarketer. Have a look at the estimated allocation of marketing funds offline vs. online and across the digital channels.
- The marketing budget for online advertising is expected to grow to 45% by 2020.
- Search engine marketing will capture the largest share of online spend with online display (banner ads, online video, etc.) taking the second-largest share.
- Online video will represent the highest growth category, with the anticipated investment more than doubling 2016 numbers by 2021.
- Social media advertising investments will continue to grow, with a 17% CAGR (compound annual growth rate) from 2016 to 2021, and is expected to represent 25% of total online spending in 2018.
- Mobile marketing has grown to a point that it’s no longer tracked in the forecast and it’s presumed to be considered across all channels.
- Digital marketing is pacing at an 11% CAGR between 2016 and 2021 with the biggest growth occurring in online video.
- Investment in paid search, display advertising, social media advertising, online video advertising and email marketing is predicted to account for 46% of all advertising by 2021.
A thorough analysis of this report has given us a key insight - email marketing still leads the way with the highest percentage ROI, with social media marketing following closely behind.
How to distribute your marketing budget across channels
Marketing technologies and automation are proving effective at bringing together the most effective marketing tactics (email marketing, organic search, social media marketing and content marketing) to achieve better results.
For a better understanding, we have elaborated the marketing spends on different metrics. Let’s imagine there is a company called ABC Pvt Ltd.
Marketing head, Ms XYZ has set the next year’s revenue goal already and now she is looking at different marketing channels to gather maximum ROI through her marketing spends.
Note: ABC Pvt Ltd. is a B2C company. Which has decided to keep Rs. 1,000,000 as next year’s marketing budget.
|Marketing spend from total revenue||10.00%|
|Your Marketing Budget||1,000,000|
Marketing Spend Bifurcation
|Projected Spend||Percentage of Marketing Budget|
|Remaining Marketing Budget||350,000||35%|
Now that a proper Marketing Budget bifurcation is plotted for the next year. It’s time to further dissect each metric.
Inbound Marketing, website design and development and paid marketing will play major roles in driving your brand bandwagon. Let’s look at each of them one by one:
Inbound Marketing will be your main channel where you can expect a great ROI. Inbound is the process of generating leads organically, nurturing those leads, and closing them into customers. It's a natural and organic approach to lead generation and client retention. The goal is to identify a specific number of qualified leads (MQLs) that are highly fitted and highly engaged in your marketing activities which can be passed to the sales team each month.
Inbound Marketing expenses
- 12-Month marketing plan
- Buyer persona development & research
- Landing page development
- CTAs (call to action)
- Email nurturing/automation
- Survey forms
- Contact/list building & segmentation
- Content marketing plan
- Search Engine strategies & Optimisation
- Social media strategies & Optimisation
- Weekly Blogging
- Video publishing
- Reviewing analytics & KPIs
- Online Reputation Management
- Consultancy or agency fees
Projected Annual Spend: Rs. 300,000
Why this requires your special attention is because Key Performance Indicators (KPIs) can save a lot of money and make your marketing spend efficient. This is a key insight given by key marketers and industry veterans. Let’s have look.
Break down your annual revenue goal into average revenue per customer. The average revenue per customer will include the cost of acquisition, retention cost and the cost associated with the product or service.
|A1||Annual revenue goal||10,000,000|
|A2||The average revenue per customer||50,000|
|A3||How many MQLs do you need to create 1 SQL?||10|
|A4||How many SQLs do you need to create 1 Opportunity?||3|
|A5||How many Opportunities do you need to close 1 deal?||2|
|Your KPI Goals|
|B1||Total no. of customers you need (A1/A2)||200|
|B2||Total no. of Opportunities needed||400|
|B3||Total no. of SQLs needed||1200|
|B4||Total no. of MQLs needed||12000|
Ms XYZ is a wise woman and she is not mass-targeting because she knows that to fulfil her next year’s revenue goal she only needs to target 12,000 Marketing Qualified Leads (MQLs).
MQLs will come to the website to see the products and services. So, a direction towards website construction and maintenance is definitely worth some time.
Website efforts should focus on bringing in higher conversion rates. If you have a poorly performing website, it's time to reinvest in a modern & newly developed one to drastically improve conversion rates. If you have a recently developed website, continuous improvement is not only suggested, it's necessary, to constantly give a better experience to your users.
Website building and maintenance expenses
- UI/UX research
- Wireframing pages
- Website copywriting
- Mockups and design
- Responsive website development
- Responsive/mobile testing
- Migration of existing content
- Launch & QA check
- Site hosting/domain hosting
- Consultancy or agency fees
Projected Annual Spend: Rs. 100,000
Though Inbound and website are vital in the overall plan, they are more subtle in approach. Ms XYZ is patient to see results from both the mediums. But in this era of cut throat competition, patience might not benefit like it used to before.
In a 2018 report from Hanapin Marketing, 62% of respondents said they planned to increase their PPC budget in the next 12 months. In comparison to previous years, Google again leads the way, with 78% of those surveyed planning to increase their Google Ads budget.
Pay-Per-Click is the purchasing of ads on various platforms to reach new target leads. Whereas inbound marketing is built on the idea of organic traffic from people finding you on their own, sometimes it takes several months for organic to pick up speed. Organic together with a boost from PPC will work wonders for your marketing efforts. PPC can take many forms, like images, text, videos, etc.
- Other platforms such as Quora, Pinterest, Snapchat, etc.
- Campaign planning
- Keyword analysis
- Performance review and recommendations
- Consultancy or agency fees
Projected Spend: Rs. 250,000
Online media is not limited to Inbound, Website and PPC. A plethora of space is available for innovation. So keep looking. Plus, Ms XYZ knows that there is still some fire left in traditional media. And for which she has already kept 35% marketing budget aside.
Traditional Media expenses
- Paper Inserts or Ads
- Events & Conferences
- Ad-hoc work
- Billboards & Banners
- any other ad or marketing service you can think of!
Projected Spend: Rs. 350,000
The digital services have been given more importance since they are 100% trackable and proven. Now that Ms XYZ has exhausted her whole budget, it’s time to see where does she get the most bang for her buck!
Why do we suggest digital spend more than traditional has a lot to do with the cmosurvey.org report. Which shows the sharp contrast between digital growth and offline decline.
Digital marketing spends, by comparison, has consistently grown by double-digit increments year after year. This means what used to be spent on radio, television, and newspaper is now being spent on search, email, and social. And this trend is expected to continue for the next several years.