I’ve written about this before, but I think it’s important to provide a refresher on how different organizations develop their marketing budgets. Perhaps this will help you as you build yours for 2021.
A lot of businesses determine their marketing budgets based on projected sales using the Marketing Budget Ratio (MBR) formula. To determine your MBR, divide your marketing investment by your total revenue, which is expressed as a percentage of gross sales. Using this formula, you’ll find many companies spend up to 10 percent of their gross revenue on marketing, especially in B2C. B2B companies are usually more conservative, but not in all cases. MBRs differ greatly by industry, mostly in terms of percentage and how they are calculated. Total marketing spend can include or exclude any of the following:
- Outside spend with agencies, exhibition companies or other external resources
- Internal marketing resources (some even include sales)
- Technology platforms
- Industry memberships
In our experience, most companies include direct, outside spend and internal marketing resources in their calculations. When making your own calculations and comparisons, you can lean in that direction when making comparisons. Here are some other numbers you might find 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 fast-growth market entrants are more aggressive, some allocating as much as 5 percent.
- The Gartner CMO Spend Survey from 2017–18 found that manufacturers’ marketing spend averaged 11.3 percent of revenue. The 2019 Gartner CMO spend survey reported B2B manufacturers came in just under 9 percent.
These variations in percentages can be attributed to the vast differences in terms of how the “numerator” in the MBR formula is compiled. So consider these figures as guides, with careful attention paid to the differences in how numbers are calculated.
Using an MBR approach to developing your marketing budget is fine, provided you’re still accounting for and aligning resources with business strategy. A same ol’, same ol’ approach to percentages and allocations is still too prominent among many B2B companies. Make sure you build your plans from the ground up each year — especially in 2021, when so much of the landscape has changed.
Picking a percentage and developing arbitrary allocations without accounting for your real needs is not only bad for business, but it can also leave you under- or over-funded.