When you are trying to establish your B2B marketing budget, there are a variety of factors you need to consider. While it helps to look at industry benchmarks, each business situation is unique.
Well-established market leaders take different marketing approaches than start-ups. High-growth industries may spend a disproportionate amount on marketing to take advantage of emerging market conditions while low-growth industries may take a longer view of the market.
So, how much should your B2B company spend on marketing? Let’s examine this in four ways:
- B2B marketing as a percentage of the overall budget
- B2B marketing as a percentage of total revenue
- B2B Marketing Spend by Industry
- B2B Marketing Spend by Growth Delta
B2B Marketing As A Percentage of Overall Budget
On average across B2B and B2C industries, marketing budgets account for 11.4% of company budgets.
The share of the budget set aside for B2B marketing spend has risen consistently over the past decade as competition has increased. For B2B companies that are product-focused, they generally spend 10.4% of operating costs on marketing. For more service-oriented B2B firms, marketing represents 12.6% of the total.
B2B Marketing As A Percentage of Total Revenue
When comparing B2B marketing costs as a percentage of overall revenue, the average company spends between 6.4% and 6.8%. B2B product companies spend 6.4% of total revenue annually while B2B service firms typically spend 6.8% of total revenue.
B2B Marketing Spend By Industry
Different industries spend at different levels. Even within industries, companies will set their B2B marketing budgets based on internal and external factors that can vary greatly from one business to the next.
For comparison, here are industry benchmarks that show average marketing budgets as part of their overall budget based on growth strategies, according to a study conducted by Deloitte and the Duke/Fuqua School of Business:
- Banking, Finance, Insurance: 14%
- Communications, Media 13%
- Packaged Goods 14%
- Consumer Services 7%
- Education 2%
- Energy 3%
- Healthcare 18%
- Manufacturing 26%
- Mining, Construction 2%
- Services, Consulting 30%
- Retail, Wholesale 14%
- Tech, Software 25%
- Transportation 8%
B2B Marketing Spend By Growth Delta
Another way to approach B2B marketing costs is to look at your growth delta. Take a look at the amount of ARR (Annual Recurring Revenue) that your company takes in each year. Then, forecast the amount of growth you want in the quarter or year ahead. This becomes your growth delta.
For example, a company that does $10 million in ARR that wants to improve to $12 million next year would have a growth delta of $2 million. As a benchmark, companies expect to spend 40% of their growth delta on effective marketing. In this example, this would mean additional B2B marketing costs of $2 million times 40% or an increase of $800,000.
Targeting For Market Growth
We generally recommend that 10% of a company’s annual revenue should be targeted for marketing growth. An additional percentage should be added bases on achieving projected revenue growth targets.
Establish Your Goals And KPIs
As you are developing your marketing budget, you should look at your Key Performance Indicators (KPIs) to determine your goals. Each campaign should have its own KPIs to indicate what you would deem a success. From there, you can work backward to determine what steps it will take to meet acceptable KPIs and fashion your plan. In turn, this will help you assess your resources and needs to help determine your marketing spend to meet these goals.
Here’s an example we’ll use to outline what you need to do. Let’s say your KPI is to acquire 4 additional customers each month. You know that your team closes 5% of qualified leads on average. That means it will take 80 sales qualified leads to get those 4 new customers.
You also know that your email marketing campaigns convert at a 4% rate. That means it will take 2,000 targeted emails a month to develop 80 leads.
- 2,000 emails a month, converting at 4% = 80 leads
- 80 leads closing at 5% = 4 new customers per month
Choose Your Marketing Channels
You’ll want to make sure your existing marketing channels are in place. You may not think of your website as a marketing channel, but it is. Make sure it’s mobile-optimized, fast-loading, and SEO-friendly. Almost everything leads back to your website, so you’ll want to make sure that gateway is tuned to deliver a top experience for eager prospects.
Marketing channels can vary by business and campaign, but you’ll want to make sure you understand the different approaches you can take. You’ll want to explore both inbound marketing and outbound marketing efforts.
Inbound marketing includes content you create to draw in potential customers and engage them. This might include content marketing, blog posts, social media, white papers, email newsletters, and other content that is designed to establish you as an industry thought-leader. It is designed to give a positive impression of your business and share important information.
These efforts are not overt sales pitches, but they are designed to engage customers and drive them through the sales funnel. This also includes content and links utilizing SEO-tactics to increase your organic search rankings.
As consumers do more online research than ever before, this type of content marketing can be extremely effective. A study by the Content Marketing Institute reveals that content marketing delivers 3X leads versus traditional advertising. It also has a longer sales cycle because you’re often developing brand awareness with customers before they are “now” buyers.
You might call outbound marketing simply marketing. It’s your outreach effort to actively attract customers. Most businesses are using a combination of email marketing, search, and paid advertising to attract customers.
Outbound marketing also includes traditional advertising such as TV, radio, and print ads or direct mail campaigns.
On average, paid media represents 25% of total marketing budgets. Digital ad spending and search advertising make up roughly 16% of the average B2B marketing budget. This includes search, social media, display ads, and video.
Determine Prospecting Costs & Operating Costs
Starting with the end goal, you now know that you need 2,000 targeted email marketing messages each month. That gives you a way to price out such a campaign and set your B2B marketing budget. These KPIs also allow you to track results to make sure your campaigns are effective.
You’ll also want to examine the operating cost of adding 4 customers per month. Is there an incremental cost to provide services? Will you need to add staff or equipment? This is an important step to determine ROI for your overall business plan.
Assess Your Marketing Assets
You need to take inventory of the marketing assets and B2B marketing budget you have available. Do you have the tools you need to get the job done? Do you have the team you need?
Finally, what else do you need to bridge the gap to meet your KPIs?
Should You Stay In-House Or Get External Marketing Help?
Things can change quickly. New trends can emerge and whither. Technology and platforms are constantly evolving. While you can keep your marketing in-house, it’s hard to keep up.
As marketing needs scale quickly, you may not have the staff or capacity to handle it. If things scale down, you may be stuck with operating costs.
The combination of marketing and technology is called MarTech. 26% of company marketing budgets are allocated to MarTech, on average. Nearly half of all marketing dollars are spent on MarTech and outside agencies, according to Gartner’s 2019-2020 CMO Spend Survey.
Hiring externally can cut back significantly on the cost of tools. A marketing agency can justify the cost of the latest tech and platforms to serve its clients. For example, marketing automation can optimize marketing efforts and significantly improve performance. Investing in in-house systems and staff to run them can get expensive. Plus, there’s the added expense of constant upgrades and training to stay on top of emerging trends.
Marketing agencies also employ specialists and experts. They’re highly skilled in optimizing campaigns and reducing wasteful B2B marketing spend.
By outsourcing some or all your inbound and outbound marketing, you can generally reduce your overhead while maximizing your efficiency. That means better marketing and keeping more of your budget for growth and asset development.
Get A Free Marketing Assessment
If it sounds complex, it can be. It’s easy to waste marketing dollars and not achieve the results you need. Working with Riverbed Marketing can simplify it for you. Let us provide you a Free Marketing Assessment. We’ll create a detailed roadmap and recommended B2B marketing budgets, including a free strategy session call.