How much should you spend on marketing?
Updated: Jun 10, 2020
You know, that question that rolls around every financial year end, and the answer to which is usually based on the mood of the boardroom, and usually ends up along one of these lines:
a) "Let's cut back from last year"
b) "Let's increase it by 8% in line with all other 'expenses'"
c) "Let's decide on a campaign-by-campaign basis"
The correct answer should actually come from asking yourself three key questions:
1) Are you a new/challenger brand or are you established in your industry?
If you are a new business or a small challenger brand fighting for market share, you should be investing as much as 20% of your turnover into marketing. The reason is obvious - you need to shout pretty loud to get heard amongst the bigger, more established brands in your industry.
If you are an established business, looking to grow your market share incrementally, but uncompromising in maintaining your position in the market, you should be investing 6-10% in your marketing efforts.
If these percentages sound like a lot, remember that by 'marketing expenses' we are including all your cross-channel media spend, production costs, all agency costs, and marketing department salary costs - not just what you spend on Google ads!
2) What is your growth strategy for the year ahead?
If you are not planning to launch into new regions, launch new products, or open new branches, you're all set with the percentage you settled on from Qu.1.
However, if you are retailer planning to open 5 new stores, or take your business into a new territory - even as an established business - the percentage you have settled on from Qu.1 will need to be added to. By how much depends on how aggressive the growth plan is.
3) What's the economic outlook?
This is an interesting dilemma for a lot of businesses, with polarised answers, usually determined by whether the business is run by an accountant or an entrepreneur. Let me explain...
Let's assume times are tough, petrol prices are going up, your margins are shrinking, and people have less disposable income. You've heard that your nearest competitor has shelved plans to open 4 new branches until the following year. You have 2 options:
a) Cut back the percentage you settled on in Qu.1 to the absolute minimum of 5% and hope your creative department or agency can pull some disruptive work out of the hat that punches above its weight. You run the risk of losing a bit of market share to more aggressive businesses around you in the short term, but the cost-saving is frugal and safeguards the business for the long term.
b) Assume that most of your competitors will be doing a) and double your marketing spend! You may think that sounds crazy, but if you have the balls to do it, you will take advantage of super-low media rates, the consumer will perceive you as "doing well" and your competitors will be caught cold. In a single year you could grab a chunk of market share that would normally take 10 years, and once you've got it, it'll be mighty hard for your competitors to win in back when the economy turns.
Still not convinced? Consider what some of the world's biggest brands spend on marketing, when the conservative may suggest they should only be 'maintaining' at 6-10%
Johnson & Johnson : 28%
Google : 12%
Apple : 8%
Microsoft : 17%
Intel : 14%
Want to unpack your situation in more detail and settle strategically on the right amount to spend knowing what it will likely achieve? Drop us a line at Synergist to help you work through that.
"Reducing marketing spend to save money is like stopping your watch to save time"
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