Marketing Budget: How Much Should Brands Spend?

The most frequently used metric of marketing spending is a percentage of the entity’s revenues.

This is a “top down” approach that is often mandated from the executive suite. This percentage ranges quite a bit depending on whether the organization in question is selling industrial products, consumer products, professional services or something else. Further, the ratio varies by industry. And finally, a higher percentage is spent by organizations launching new products or brands or repositioning existing brands or taking their brands into new territories or markets.

The general rule of thumb is that consumer product companies should be spending between 6% and 12% of revenues on marketing, while B2B companies should be spending between 2% and 6% of revenues on marketing. A 2010 Chief Marketing Officer (CMO) Council Report showed that 16% of companies spent between 5-6% of revenue on marketing, with 23% spending over 6%. Companies that are launching new products or brands or entering new markets often spend up to 20% of their revenues (and sometimes more) on marketing. And many upscale, high image consumer product brands also spend a significantly greater amount of their revenues on marketing.

Another consideration is how much the brand in question is spending in total on marketing relative to its competitors’ brands. Assuming the same target markets and equal advertising effectiveness and media efficiency, the brand that spends more will have greater mindshare, which results in greater market share. In down markets, many brands reduce their marketing budgets, giving the brands that don’t an opportunity to increase their mindshare and especially their market share by maintaining their levels of marketing spending as seen here by Proctor and Gamble.

A recent Go-to-Market survey of sales and marketing professionals reported these marketing and sales budget distributions:

MARKETING Budget (as percent of revenue):

% of Revenue % of Companies
No Budget 1.1%
0-2% 28.6%
3-5% 33%
6-10% 21.1%
11-15% 8.6%
16-20% 4.3%
20+% 3.2%

SALES Budget
(as percent of revenue):

% of Revenue % of Companies
No Budget 4%
0-2% 14.5%
3-5% 23.4%
6-10% 27.6%
11-15% 13.5%
16-20% 8.4%
20+% 8.5%

Marketing spending includes activities such as trade events, advertising, public relations, brand strategy, brand management, brand licensing, brand consulting, collateral materials, direct marketing, social media and marketing research. It does not include selling.

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One comment

  • Roger Hicks

    April 2, 2012 at 5:11 pm

    Thank you. I am amazed at how often businesses have no idea of what their marketing budget should be, what they have actually spent, and what the return was on their investment. I look forward to sharing this with several clients.

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