At what stage do companies spend much marketing budget for their product explain?

There are many tips on how much companies should spend on marketing. On average, analysts and experts call figures in the amount of 7-12% of revenue. But this is only a general indicator. When forming a marketing budget, it is necessary to analyze much more information than an ordinary analyst.

One of the most important factors that must be considered when determining the budget is the industry. Take, for example, a consumer goods company. Today they can spend 15% of their income only on online marketing. At the same time, transport companies can spend less than 5%, since most of their business depends on existing relationships.

The issue of marketing budget is not resolved in a few minutes. They devote several months to this, analyzing previous indicators, general changes in business and in a specific industry.

Regardless of whether a company runs a small or large business, its owner understands the importance of prioritizing its advertising capital. Without marketing, the company makes little profit.

But the most interesting thing is that the mark “enough” is always different for a successful business in a different industry. That is why we analyzed the average marketing budget in different industries.

Spenders and economists

Having formed a recommendation of 12%, analysts indicated an average result. It is noteworthy that this figure has not changed for several years. Nevertheless, there are industries-spenders, and there are economists.

So, companies that engage in consumer services allocate almost 14% of the budget for advertising. At the same time, in the field of energy and mining, 0.5% of the total annual budget is sufficient for business.

I would like to draw attention to the fact that in recent years these figures have changed significantly. At the same time, each industry, without exception, spends significantly less money on marketing.

As you can see on the graph, at the beginning of the last decade, up to 4% of the budget was allocated for marketing in the energy sector (which is 3.5% more than now). The leader in costs was the consumer goods packaging industry: these companies allocated as much as a quarter of the funds, and today they spend only 10%.

Why are costs reduced?

A paradox can be noted: the level of competition has increased, but advertising costs have decreased.

Firstly, marketing strategies have changed over the past few years. New promotion tools have appeared, consumers have a different attitude to advertising. Because outdated and expensive approaches have become ineffective.

Secondly, companies began to spend less on traditional marketing (TV, radio, etc.) and are focusing on digital. It is many times cheaper, and moreover, more efficient.

Thirdly, increased competition, in fact, stimulates any sale. When choosing a person, he wants to compare the services or goods offered. Because he himself begins to seek information and the need for advertising is reduced.

Fourthly, companies increasingly rely on marketing analytics. Advertising departments are expanding, but not with the aim of developing ideas, but with the aim of providing more accurate results. Working with specific numbers, companies define which promotion tools you can no longer rely on, so they reduce costs.

Today, it simply does not make sense to allocate huge billion-dollar budgets. Even market leaders, from The Coca Cola Company to Nike, have cut their advertising costs. Why? The consumer began to be interested in the product on their own. He does not need to drive into the head that this or that company exists. In search of alternatives, he still finds out about some opportunities.

Previously, the main purpose of advertising was to increase recognition. That is why large amounts were allocated so that marketing became viral. Today, the main purpose of advertising is to convey the value of the product. It is not quantity that plays a role, but quality. Therefore, in all sectors marketing costs have been significantly reduced.

Where does the money go

The answer to this question depends not only on the industry, but also on the duration of the company. Startups invest most of their money in increasing brand awareness, attracting the first audience, creating prospects for scaling. At the same time, an established business makes the search for new customers and victory over a competitor the main goal.

The main cost items in marketing

There are 6 main areas for a marketing budget:

• direct costs;
• social networks;
• staff;
• research;
• training;

Direct marketing costs should be understood as means that facilitate the refinement of the actions of sales representatives. In other words, this is all the costs associated with direct functions for the sale and promotion of the product.

The costs of social networks are means for creating and maintaining advertising offices, ensuring the high relevance of advertising posts, and providing creatives. In addition, this article includes sharing funds between different platforms.

The costs of employees include not only salaries, but also the search for marketers, wasting time on interviews, bonuses, and so on.

Marketing research includes funds for collecting information about campaigns, conducting tests of different ideas, searching for the target audience, studying trends.

Training costs include the purchase of licenses for various advertising tools, the payment of continuing education courses for employees.

Analytics is the costs associated with summing up and deriving exact numbers based on marketing research. So, research affects the entire industry and the main goal is to collect information. Analytics involves obtaining results and determining the impact of various events specifically on your business.

Industry-specific costs

Having examined the general indicators of the costs of marketing, you can more accurately understand how and why different companies spend this or that part of the revenue on advertising. Now we will consider the division of the budget in different sectors on specific examples.

SaaS-companies

Software development as a service is a completely new movement in our world. However, demand is growing faster. Services such as Jira or Slack are actively used in many companies, regardless of scope.

Salesforce – is a company developing the same name CRM, which is available only as a SaaS. Salesforce is involved in many projects, from IT to E-commerce. Today this project is quite popular and, it would seem, doesn’t need any additional introduction.

However, this company invests 46% of revenue in sales and marketing. Profit Salesforce in 2018 amounted to 10.5 billion. Accordingly, 5 of them were fully allocated to marketing.

Why so many? Almost each of you asked a similar question. Indeed, with their current development, less money can be allocated and good results can be obtained. But such investments showed excellent growth. In 2019, the company's profit grew by 25%!

Moreover, such investments allowed them to occupy high positions in the market of CRM-programs. So, Salesforce occupies 19.6% of the industry, which is more than that of Microsoft, SAP or Oracle.

Mindbody – another company that has been on the market for almost 20 years and specializes in software. Today they provide cloud-based business management software. The company's revenue in 2018 amounted to 229 million dollars.

These numbers are far from the performance of these "sharks", including the same Salesforce. However, achieving such indicators is difficult. The question arises: how did they succeed? Investment in marketing. Mindbdoy invests up to 40% of its revenue in advertising strategies. The last result of such investments is a profit growth of 31%.

Both Mindbody and Salesforce spend significantly more on marketing and sales than on research and development (these articles account for about 15-20%), but get the corresponding result. Why? They are already confident in their employees and services, but it is impossible to get the same permanent confidence in marketing.

This trend is characteristic of the entire software development industry, especially for companies that focus on SaaS development.

Tableau – a company that for a long time did not stand out with special results and was considered a mediocre supplier. In 2013, they changed their marketing strategy. So, in 2014, revenue amounted to about 400 million dollars, and in 2018 - 1.2 billion. Ask “how?”. Very simple: 50% of revenue allocated for marketing.

SaaS companies were the first in the entire list, as they clearly demonstrate that 7-12% is not a standard. Moreover, such figures are too generalized. Investment sizes are highly dependent on industries.

Technology companies

Since we live in the era of digital technology, then right after SaaS-companies we will move on to technology. Now they dominate the Forbes list of the most influential brands. You just need to know how much such companies spend on marketing.

The most successful and almost incomparable brands today are Microsoft, Google, Apple, Intel and Samsung. All of them are “monsters” of their industry and it is very difficult for competitors to get around them, and even more so to remove them from the shelves. Obviously, each of these companies has huge revenues, reputation and recognition. Should they invest in marketing? YES!

The percentage of marketing spending in technology companies

At the end of 2018, the investments were as follows:

• Microsoft – 15%;
• Google – 11.9%;
• Intel – 9%;
• Apple – 6%;
• Samsung – 8%.

And again the question: why? These brands are already trusted. But there is a struggle with competitors. Increasingly, many technology companies are resorting to aggressive marketing. If you do not struggle with such approaches, then over time the user will believe the competitor’s advertising and refuse the product with which he lived for many years.

In addition, the main indicator of such companies is the expansion of sales. And they relate to marketing as a tool to increase sales. We must not forget that each brand has an audience with a negative attitude. The more it learns about the value of the product, the higher the likelihood of obtaining loyalty.

Production Companies

This is a vast industry that covers a huge range of products, from drugs to clothing. Their sales very much depend on marketing, since there are hundreds or even thousands of alternatives for each product.

IDEXX Labs is a corporation that provides products and services for veterinary medicine. Imagine how vast this market is, given the number of animals that are tamed around the world. To get a worldwide vocation and sell their products in every corner of the planet, IDEXX invests at least 15% of revenue. In 2017, this indicator amounted to 17%, which showed revenue growth of 12%.

Johnson & Johnson is another world-famous brand that manufactures medicines, hygiene products and medical equipment. Today it is one of the most competitive markets. Therefore, in 2017, the company spent 27.7% of its revenue on marketing. Result - revenue growth of 6.7%.

Education industry

The educational sector also does not live without marketing. Today we all know about Harvard, Oxford or Yale, not only because of their history or the quality of their education. First of all, all these institutions invest in their own promotion.

Their marketing is to allocate funds to search for talent and promising people. As a rule, many successful businessmen and leaders of the Forbes list graduated from prestigious universities.

World leaders in education compete for every prospective student. That’s why they annually carry out information campaigns, attract public organizations, participate in various shows and just as well provide their own promotion in social networks.

So, for example, the educational holding Strayer Education in 2017 invested 18.2% of revenues in marketing, and the company engaged in early education Bright Horizons laid out 10.2%.

Marketing agencies

Many people think that in this industry marketing costs are among the lowest. After all, the entire staff of any advertising company consists of specialists who know a lot about cheap and effective marketing. But it's not that simple.

Ignite Visibility was able to provide their services to Tony Robbins only because of their fame and reliability. How did he know about them? WebFX is one of the most popular digital marketing agencies in the world. Their customers include FujiFilm, Verizon, and Wrangler. Why did these brands collaborate with WebFX?

Of course, part of the answer is the quality of services. But in the world there are many marketing agencies that can provide an equally good result. To win the trust of a large brand, you need to pay a large amount for promotion.

WebFX invests in the promotion of about 45% of its own revenue, Thrive Internet allocates 35% for marketing, Jumpfly - 37%. This is how they stay on top and can work with brands like Aston Martin, Hooter or National Geographic.

Industry benchmark is the starting point

As you can see, marketing investments are very different from the industry. They can reach a staggering 50% of revenue, and can remain at 1%. Much depends on the specifics of the business.

A marketing agency receives customers only if it takes care of its own advertising. At the same time, companies in the energy or mining industry depend not on promotion, but on partnerships and productivity.

Studying industry trends can provide you with a clear position for starting a business. You cannot justify your expenses without financial indicators. Where to get them? Analyze your costs over the past year? It's not enough.

You must consider the performance of leaders in your niche. Once you understand where and how they invest, you will be able to formulate your marketing strategy.

What is the Average Marketing Budget by Industry key takeaways:

1. Spenders and economists
2. Why are costs reduced?
3. Where does the money go
4. Industry-specific costs
5. SaaS-companies
6. Technology companies
7. Production Companies
8. Education industry
9. Marketing agencies
10. Industry benchmark is the starting point

Merehead does professional development of Average Marketing Budget. If you have questions, contact us for a free consultation.

RATE IT (325 rating - 4.4 from 5)

Thanks!

5 stars 4 stars 3 stars 2 stars 1 star

At which stage is a lot promotional expenditure?

How much of a budget should be spent on marketing?

In which stage of the product life cycle should a firm consider investing heavily in advertising?

Which stages of the product life cycle is known to include a lot of advertising and public relations to create awareness?