by Chris Leone This article by Chris Leone, from WebStrategies has been reposted with permission. As President, Chris is responsible for leading all the day-to-day operations of WebStrategies. His work has been featured on the Google Analytics and Hubspot blogs, and he’s a regular columnist for the Richmond Times Dispatch.
This article provides information that can guide you about how to budget for marketing and where to invest your marketing dollars.
Included in this article are:
- How much are companies spending on marketing?
- Where are marketing dollars invested offline and online?
- What marketing strategies and tactics are getting results?
The answers to these questions come from a few reliable sources:
- an annual survey of Chief Marketing Officers (CMOs) from a variety of industry sectors and firm sizes
- a leading research group report about interactive (digital/online) marketing trends and predictions
- other leading digital marketing research firms.
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Overall Changes In Total Marketing Budgets
First, a look at how marketing budgets are changing.
For eight consecutive years, top marketers were asked how their marketing spend was expected to change in the upcoming year.
Since 2009, marketing budgets remained relatively consistent or increased compared to the previous year for the majority of participants.
With no evidence to suggest this trend will change, 2018 marketing budgets are expected to remain consistent with 2017 levels or increase.
The report above from cmosurvey.org shows a slight slow-down in the rate of increase in marketing spend after a large jump in early 2017. The largest increase in projected marketing spend occurred shortly after the recession of the late 2000’s, but continues to fluctuate between 4 and 10%.
You can download the full report here.
Marketing budgets as a percent of the overall firm budget has remained even more consistent, as shown in the chart below. On average, marketing budgets make up 11.4% of total company budgets, with some variation depending on the industry and who they're marketing to. Not surprisingly, those companies in the B2C product space allocate the largest portion of their total budget to marketing, averaging 13.4%.
Marketing spending as a percentage of revenue tends to fluctuate, but has trended down slightly in the past few years, with the highest percentage again coming from B2C product companies followed by B2C services.
The chart below shows the wide variation by industry in marketing budget as a percent of total revenue.
One of the difficulties in providing a general budget recommendation is that not all companies are consistent with what they include in their marketing budget. While some companies include any marketing, and even sales related expenses, others would categorize some of those expenses separately as a part of their total budget. The chart below illustrates these inconsistencies, and shows the marketing expenses most commonly included.
How To Allocate Marketing Budgets Across Channels
The next question to answer is how to allocate marketing budgets across channels – offline and online - and how to spread the online investment across the various online/digital channels.
Reports from Forrester Research and eMarketer show the estimated allocation of marketing funds offline vs. online and across the digital channels.
Here are some conclusions from that report:
- In 2018, the average firm was expected to allocate 41% of their marketing budget to online, and this rate 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% 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% compound annual growth rate 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.
Conclusions from the 2014 report (for comparison):
- 29% of a marketing budget was allocated to online/digital channels
- Search engine marketing (SEO & SEM) captured the largest share of online spend at 47% or about 14% of the firm’s total marketing budget
- Online display advertising (banner ads, remarketing & retargeting) captured the next biggest share of the online spend at about 34% of total online spend and about 10% of the total marketing budget
- Social media investments were estimated at 6% of total online spend and a bit less than 2% of the total marketing budget
- Mobile garnered about 10% of the total digital marketing budget and slightly less than 3% of the total marketing budget.
The chart below shows strong increases in digital channel investment. At least half of all respondents planned to increase spending on social media marketing, content marketing, personalization, video advertising, and online lead generation.
Traditional channels did not fare nearly as well. Print, radio, and television were expected to see a net decrease in total marketing investments.
Once again, these are averages.
How marketing funds are ultimately allocated is driven by the nature of the business, the competitive marketplace, and how target customers behave through the buying funnel.
Which Marketing Strategies & Tactics Are Getting The Best Results?
In a recent survey of 2,500 digital marketers, respondents reported on what marketing activities generated the best ROI.
Email marketing still leads the way with the highest percentage of Excellent and Good ROI results reported, with social media marketing following closely behind.
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.
Which Social Media Channels Should I Invest In?
An August 2016 report from eMarketer attempts to project social media penetration by social platform through 2020.
While there are no direct investment assessments associated with this particular study, it does show noteworthy trends among the major social channels.
Facebook is expected to remain king, with 90% of social media users utilizing the platform. Instagram is expected to grow, from 32% penetration to 47% by 2020.
Other social channels with baked in advertising features, such as Pinterest and Twitter, will continue to have relatively low penetration, peeking around 33% of users by 2020.
This data suggests an emphasis should be made on Facebook and Instagram channels for social advertising.
Expected Changes In Digital Platform Investments
In a 2017 report from Hanapin Marketing, 75% of respondents expect to increase their Google Adwords investments in the next 12 months (more than any other digital channel). Facebook, which has become a respectable competitor to paid search, expects to see increased investments by 71% of respondents.
Instagram and Twitter, by comparison, expect to see increased investments from less than half of respondents (46% and 21% respectfully). Snapchat, which has a greener ad platform, was at the bottom of the list, with only 15% of respondents expecting to increase investments into 2018.
This report bodes well for "digital traditionalists," who continue advocating the importance of search over social channels.
Changes in Traditional Versus Digital Marketing Spend
This chart, also from cmosurvey.org, shows the sharp contrast between digital growth and offline decline.
For a half decade, investments in traditional advertising have consistently dropped by single digit percentages each year.
Digital marketing spend, by comparison, has consistently grown by double digit increments year after year.
This means businesses are shifting their marketing spend.
What used to be spent on radio, television, and newspaper is now being spent on search, email, and social.
This trend is expected to continue for the next several years.
The chart below from eMarketer projects the following: “In 2017, TV ad spending will total $72.01 billion, or 35.8% of total media ad spending in the US. Meanwhile, total digital ad spending in 2017 will equal $77.37 billion, or 38.4% of total ad spending.”
This marks the first time in history digital spend surpassed TV ad spend in the US.
And the gap will only widen—by 2020, digital spend will surpass television by 36%.
Percentage Of Marketing Budget Spent On Digital
Digital spend is only a portion of total marketing spend for most businesses. For 50% of businesses surveyed, digital represents less than 40% of total marketing spend.
Businesses who rely more heavily on the internet to generate sales (e.g. an ecommerce business), invest a greater percentage of their marketing budget towards digital.
For more traditional businesses, which rely on offline AND online activity to fill the sales funnel, a healthy mix of marketing investment is to be expected.
Source: Econsultancy Digital Report
How Much Should Your Firm Budget For Marketing?
The CMO survey offers some answers. In the charts below you’ll see how marketing professionals from all types of firms responded to this question in 2017.
The main takeaways from this survey are as follows:
- For B2B firms, marketing budgets as a % of firm revenue fell within the 6-7% range
- For B2C firms, marketing budgets as a % of firm revenue were around 7-9%
- Marketing budgets as a % of overall firm budgets have been fairly consistent for the past few years, in the 10-11% range
Marketing Spending From 2012-2013:
As a point of comparison, here is data from 2012-2013.
Based on these results, we see that B2B marketing spending has increased over the past couple years, whereas B2C marketing spending has dropped slightly.
[RELATED: The Top B2B Digital Marketing Strategies]
It is important to note that these percentages represent the total marketing investment, not just advertising or media spend.
They include things like marketing staffs, customer relationship management, investments paid to agencies and other outside suppliers, advertising costs, media spend, etc.
Firms seeking to grow market share will likely be on the high side of these averages vs. firms planning for modest growth, which may be on the lower side.
Additionally, the competitive nature of a certain marketplace will influence where a particular firm falls among these average figures.
Marketing & Digital Budget Summary - What Does It All Mean?
We purposely compile surveys from a variety of sources over a number of years to give you an objective perspective, and appropriate context.
The conclusions of each survey are not always consistent.
This inconsistency represents the diversity of business needs and the marketing strategy that accompanies it.
That being said, the overarching themes from the above studies are as follows:
- Marketing budgets are increasing
- More money is being spent on digital, at the expense of traditional advertising channels
- Total marketing budgets are between 7 and 12% of total revenue
- B2Cs generally spend more on marketing compared to B2Bs
- Smaller companies spend more on marketing as a percentage of their total revenue
- More mature marketers tend to slow their marketing spend as better results measurement enables them to spend smarter.
- Search and Display marketing represent the lion’s share of digital budget
Bringing together the data from these credible sources in the marketing community should help you determine how much to spend on marketing, and where to apply those investments.