budget calculations

For companies on a calendar fiscal year, planning is mostly complete and budgets numbers are cemented (or are at least beginning to cure). As the budget figures solidify, you may wonder where you stand on your marketing allocation relative to other industry or category benchmarks. This can be a difficult area to make meaningful comparisons, but we’ve done our best to provide a little guidance.

More B2B Budget Smiles Than Usual

I’ve yet to meet a marketing VP or CMO who is satisfied with their budget, so if you’re feeling a little underappreciated, you’re in good company. But fear not, for things are getting better in B2B. In general, budgets are going up. How much? According to The CMO Survey published this past October, U.S. marketing executives expect budgets to grow by 8.9 percent on average for 2018–2019. This includes B2C and B2B enterprises, but the report also incorporates some B2B industry sectors. For example, manufacturing respondents projected 4.3 percent increases for 2018–19. Mining and construction projected a slight reduction at 2.5 percent. And technology, software and biotech companies are increasing their budgets by 12.4 percent.

How Big Will B2B Marketing Budgets Be in 2019?

The easiest way to compare marketing budgets is to look at them as a percent of a company’s revenue. But good luck making an apples-to-apples comparison. Companies report marketing spend in vastly different ways, including or excluding any of the following:

  • Outside spend with agencies, exhibition companies and other external resources
  • Internal marketing (and even sales) employees
  • Technology platforms
  • Research
  • Industry memberships
  • Training

Most companies include their direct, outside spend and internal marketing resources, so when looking at numbers, you can lean in that direction when making comparisons. Here are some averages that might be helpful.

  • Our own experience indicates mature B2B manufacturing, industrial, construction and engineering companies usually allow 0.5 to 2 percent of revenue for marketing. Start-ups and faster-growth market entrants are more aggressive, with some allocating as much as 5 percent.
  • The CMO Survey reports B2B product and services company marketing budgets range from 6.3 to 6.9 percent. That’s high, but likely because they include tech, software and biotech companies, which come in at 9.7 percent of company revenue. The survey reports manufacturing and other similar categories at 2.4 to 3 percent of revenue, which aligns more closely with our experience.
  • One other reliable source of information is a series of advertising ratio reports published by Schonfeld & Associates. You can find detailed information by SIC code (publicly available) and even company name (if you purchase the report). Here are some B2B highlights to help you out:
    • Oil, gas and chemicals: 0.5 percent
    • Electronics and scientific instruments: 1.0 percent
    • Industrial equipment: 1.5 percent
    • Computers and software: 3.7 percent
    • Construction and real estate: 2.0 percent
    • Communication products and services: 3.3 percent

Note that advertising spending information from Schonfeld & Associates is defined as “total advertising and promotional expense, including media, direct mail, point-of-purchase materials, production, ad department operations, research and other direct costs as reported in SEC filings,” so these numbers are pretty comprehensive in what they include.

Using percent of revenue as a comparative benchmark is tricky due to reporting inconsistencies. If you really need a benchmark for your B2B marketing budget, I recommend triangulating among multiple sources, such as ForresterGartnerMarketingProfs, the Content Marketing Institute, The CMO Survey and the Schonfeld & Associates report.

Where’s the Money Being Allocated in B2B Marketing?

Year-to-year shifts are hard to track, but there are larger trends that can be detected. Four categories jump out as the focuses for budget funding:

  • Content marketing – Yep. It’s not going anywhere, and nearly everyone is engaged now. In fact, the Content Marketing Institute reports 67 percent of B2B marketers say their organization is very/extremely committed to content marketing. Budget spending reflects this, with 26 percent of budgets on average going to content marketing activities and media. Half of B2B marketers are expecting an increase in content marketing budgets in 2019. Just more than half are using marketing automation (54 percent), so look for continued investments in marketing technologies that engage and pull customers deeper into the funnel.
  • Digital – Budgets have been headed online for more than a decade, and the gradual increase will continue. According to Forrester’s U.S. Digital Marketing Forecast, 2016–2021 report, the average company is expected to allocate 42 percent of their marketing budget online; this is expected to grow to 45 percent by 2020. Online video will demonstrate the largest increase within the digital category, more than doubling between 2016 and 2021. Social media advertising will see about 17 percent compounded annual growth through 2021. While these numbers include B2C and B2B, the trend will hold for B2B, even if the absolute numbers may vary slightly. According to The CMO Survey, digital will consume a larger portion of marketing budgets. B2B services companies will see a 12.5 percent change increase in digital marketing spend, and B2B product companies will see 15.1 percent increases. Spend on traditional advertising methods will decrease by 1 to 2 percent.
  • Demand Generation – According to the 2017 Demand Generation Benchmark Survey Report, 70 percent of marketers said they would increase budgets for demand generation in 2018, a trend that is expected to continue for 2019. It’s little wonder, seeing that 91 percent of demand generation marketers say they track their revenue contribution to the company. If you can prove your contribution, you can get the money.
  • Keep an eye on analytics. While numerous B2B sectors still struggle with the basics of customer relationship management (CRM), account-based marketing (ABM) and marketing automation, the march toward more data-driven approaches is inexorable. As more marketing and sales data are taken in, more time will be spent understanding the figures and their potential implications. Forrester’s Digital Marketing Forecast projects the marketing budget allocation for analytics to leap from 5.8 to 17.3 percent of marketing spend in the next three years, a 198 percent increase. While this figure includes B2C and B2B companies, the report anticipates large increases across all B2B sectors.

A Word of Caution When Comparing Marketing Budgets

While you’re comparing numbers to industry averages and peers, don’t get too wrapped up in what others are doing. Understanding where competitors and peers are can be helpful, but it’s not a meaningful metric if your goals and ambitions are significantly different. Ideally, you should build your marketing budget from the ground up, with enough funding to support your company’s key initiatives plus the “mandatories” you need to include. Just picking a percentage without accounting for your real needs can leave you under- (or over-) funded.

On that note, if you end up over-funded, please let me know. You may be the first B2B marketer ever to experience that phenomenon.