For many companies, this question boils down to a chicken-egg scenario. Do we need marketing first to generate sales, or do we need sales revenues to justify additional marketing? In either case, how well does our marketing budget align with our business goals and market realities? In speaking to prospective clients, I find many consider marketing as a cost center, not a profit center, and as such it receives a lower priority than product development, infrastructure and sales. In my view, this is a serious mistake for any size company. Let's break this question down into some key components.
How Competitive Are You in Your Market?
In evaluating marketing spend, it's always a good idea to look at industry trends—how your competitors are sizing up and deploying their marketing dollars. According to a recent Forrester's B2B Marketing Tactics and Benchmarks Survey, the average B2B marketing budget is about 2 percent of revenues. An earlier MarketingSherpa survey showed marketing budgets ranging from 11 percent of sales for small companies (< 100 employees) to 6 percent for large companies (> 1000 employees). It may seem counterintuitive that larger companies would spend a smaller percentage of budget, but as companies build critical marketing infrastructure (people, platforms and processes), especially digital marketing, marketing operations tend to become more scalable and cost-effective. Here's a great tool from BrainRider for evaluating your marketing budget and budget allocation.
Chances are also good your competitors are increasing their marketing budgets this year. According to B2B, almost 50 percent of companies are boosting their marketing budgets, compared with 40 percent last year. Nearly 70 percent is being spent on demand generation and customer acquisition, while brand awareness gets about 18 percent and customer retention about 13 percent. Breaking this down further, 62 percent will increase budget for email marketing, 56 percent for social media, 56 percent for online video and 53 percent for search marketing. According to the Content Marketing Institute and MarketingProfs, companies are spending 33 percent of their marketing budgets on content marketing, compared with 26 percent last year, and 56 percent say they are increasing their content marketing budgets this year. More than half will spend more on CRM and marketing automation to help enable their sales and marketing teams.
The bottom line: Across the board, your competitors are likely spending at least 2 percent of revenues on marketing (and the data suggests that number is low), and they are progressively moving that budget into content marketing, demand generation, lead nurturing and marketing automation.
If you can't compete for a respectable share of brand awareness, thought leadership and ultimately sales from digital marketing, how will you survive?
What About Marketing ROI?
It's one thing to squawk about alignment with your competitors, but many C-Suite executives are still reluctant to spend the requisite budget on marketing because it fails to deliver positive ROI. Fair enough. Surely every component in your organization should contribute in some way to the growth and profitability of the company, and each one should be 100 percent accountable for its share. What they fail to realize is that sales and marketing performance measurement has come a long way in the past few years.
Marketo and Eloqua call this new approach Revenue Performance Management, or RPM, defined as "a strategy to optimize interactions with buyers across the revenue cycle to accelerate predictable revenue growth." This boils down to a combination of strategy and marketing automation to optimize the sales funnel from top-funnel demand generation through lead capture, lead nurturing and hand-off of sales qualified leads (SQLs) to the sales team. We call this process Enterprise Inbound Marketing. Throughout the process, sales and marketing are aligned in terms of messaging, lead lifecyle and lead scoring criteria and communications. Another new aspect of Revenue Performance Management is the emphasis on revenue-centric metrics, like cost-per-lead, cost to acquire a customer, percentage of target revenue achieved and percentage of pipeline sourced by marketing. With this kind of approach, CMOs can easily evaluate marketing performance and justify budgets.
All too often when I chat with CEOs, CMOs or business owners about their marketing budgets, their figures are way below recommended targets, more often than not significantly below 1 percent of revenues, while their objectives are usually to grow revenues through digital marketing. It's not going to happen for two important reasons:
- Their competition is spending more than they are on digital marketing, which creates a huge competitive disadvantage
- They are way behind on building an effective digital marketing capability, and now they are in catch-up mode
Revisit the marketing plan and budget. Bring them up-to-speed by considering competitive forces, marketing trends and technology, talent needed for digital marketing and means for implementing revenue performance management. This is just the beginning. In catch-up mode you are going to have to make rapid investments (and probably see negative ROI) for at least a few months, depending on how aggressive your plan needs to be. By delaying these decisions, you are putting your company further behind and making it less likely that you can ever be competitive, let alone dominate your market. Just sayin'...
Comments welcome as always.
Photo credit: FindYourSearch
With over 30 years of business and marketing experience, John loves to blog about ideas and trends that challenge inbound marketers and sales and marketing executives. John has a unique way of blending truth with sarcasm and passion with wit. You can connect with John via Twitter, LinkedIn or follow John McTigue on Google Plus.