What Percentage of Total Revenue is Spent on Marketing?

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There are a lot of different ways that people will ask the question posed in the headline to this post.

  • What is your marketing ROI?

  • What is your marketing contribution?

  • How efficient is your marketing spend?

And depending on who you are, and what your company norms are, you may answer the question in a variety of ways. Some companies prefer to see marketing spend expressed in cost per customer acquisition terms. Others want to know how much revenue is generated for every dollar spent on marketing.

But one core metric that every marketer and business should know is how much money you’re spending on marketing relative to total revenue. It’s a metric that you are likely to see in most business courses, one that tells you how effective your marketing dollars are being spent.

The Calculation

How we calculate this number should be quite obvious, and not altogether difficult. Do you know what your total marketing spend is? Good. Do you know what your total revenue is? Also good.

Simply divide the total marketing dollars spent by the total revenue generated, and multiply it by 100 to express that number as a percentage. And there you have it.

The Meaning

Now that you have your percentage, you need to know what it means. Are you doing a good job or aren’t you?

The percentage that you’re looking at is the best way to determine the overall effectiveness of your marketing budget. If you are spending money in the right way, in your efforts to drive sales and grow the business, then that number will tell you. In the same way, if you are spending money inefficiently, it should tell you.

If the percentage you get when you do the calculation is 50%, that means that you are generating roughly $2 dollars for every dollar that you spend on marketing. You may think that sounds like a good deal, right? The problem is that marketing, although it may represent the highest cost center in the business, is not the only cost a company must account for.

Therefore, if marketing is generating $2 for every dollar spent, there is only $1 left over for finance, and customer service, and product development, etc.

The Target

So that leads one to ask, what percentage of revenue should you spend on marketing? Is my percentage high or low?

The target should vary from company to company and industry to industry. Some companies and some products will have lower costs than others, and therefore can dedicate a higher percentage of overall expenses to bringing in new customers. But margins matter, no matter what business you are in.

A baseline average across industries, according to most textbooks, is that you marketing expenses should not be higher than roughly one-third of total revenue. Aim for 30%.

Conclusion

Understanding how efficient your marketing is matters if you want to ensure sustainable growth. If you spend too much on marketing and don’t get enough revenue in return, you might lose money as you grow.

Calculate how much you are spending on marketing as a percent of total revenue and adjust your strategy accordingly.

Make 2016 a Growth Year

What are your business goals for the New Year? Is growth one of them? It should be.

Growth should always be a goal for marketing. As marketers, it’s our job to bring in more customers, more revenue. Growth is in our job descriptions.

Maybe your company clearly defines goals for the year, maybe they don’t. Maybe you have individual performance goals you have to reach, maybe you don’t.

But whatever your situation, do me a favor. Start now. Make a list of goals for 2016. Make them concrete. Things you want to learn. Campaigns you want to run. Products you want to launch. Technology you want to obtain.

Then, when you have your list, take a moment to write down how each one of those things is going to help your company grow.

And as the calendar turns and you find yourself in the grind of another year, don’t ignore that list. Work toward it each and every day. Ask yourself, is what I’m doing helping the company grow?

Those who commit themselves to growth in 2016 will grow. It starts with a mindset. It starts now.

How to Set Your 2015 Marketing Budget

What did you do this year that worked?

What did you do this year that did not work?

What are your goals for next year?

Those are the three questions that you need to ask yourself before starting to put together your marketing budget for next year. And you need not only to ask them, you need to have the answers. If you don’t, then you need to set out to find them.

Create a list of everything you did in 2014. Try to include everything on that list, from where you advertised and how much you spent, to changes in strategy, design, messaging, pricing, etc.

Once you have a full list, do your best to define the results, both positive and negative, for each item on the list. Was the advertising effective? What was the return on investment? Did changes in strategy lead to increased sales or more traffic to the site?

Now you have a full list of what you did in 2014. You know to some degree what worked and what didn’t (and the more accurate your analysis, the better you’ll be able to plan for 2015). Next you need to write down your goals for 2015 – revenue and sales targets, and the initiatives you think will get you there.

You’ve now answered all three questions above. It’s time to start on 2015.

  1. Get rid of all activities that did not work in 2015. Rather than trying to find ways to tweak them to make them work, I recommend wiping them out completely so that you can focus on those activities that did work.
     
  2. Find ways to grow the activities that did work. Maybe there was a particular advertising channel that outperformed all the rest. Can you grow it by spending more and still achieve those stellar results? Take the money you saved on the things that didn’t work and spend it on things that did. You are essentially doubling down on your winners.
     
  3. Finally, add in those new activities that you believe will have the biggest measurable impact. Prioritize those things that will have the most immediate impact, because if you’re able to hit or exceed your goals early in the year, you’ll have more room to test new, riskier activities later in the year.

Your marketing plan is built. The next step is to get input from other members on your team. Present it to them, along with the goals for the year, in a clear and easy-to-understand way. Get input, and revise where needed.

And you’re ready to go! Good luck to all marketers in 2015, except all those competing with me directly of course ;)

How to Use Big Data on a Small Budget?

There is not bigger buzzword in the marketing atmosphere today than Big Data.

But when most of us hear “big data”, we think big budgets. Don’t let that association scare you off. Because there are plenty of ways to take advantage of the data trend without investing millions of dollars.

Firstly, what are we talking about when we say “big data”?

Big data refers to using the information at our disposal to make more informed business decisions. Over the last decade or so, our ability to collect and use data has exploded. More information is available for more people, and some really smart people have figured out how to organize and analyze that data to improve business processes and results.

Here are five ways your company can take advantage of big data on a small budget:

  1. Google Analytics – installing and utilizing a free tool like Google Analytics allows you to track all of your web activity and spot trends that you can use to make decisions about your website. You can learn more about who is visiting your site, how they are finding you, what they are looking for, and how they engage once on your site. Effective, data-centric marketers use website analytics to spot trends and make changes that will improve the usability and effectiveness of their site.
     
  2. Remarketing – Companies like Google, Retargeter, and AdRoll all offer services that allow you to advertise to those most likely to turn into customers, the people who are already interacting with you online. Placing a simple tracking pixel on your site, and targeting those people that visit with ads, helps you advertise more effectively. And you can customize the messaging of each ad based on what the person is looking for or looking at on your site.
     
  3. Lookalike Audiences – Facebook now offers a great big data marketing tool in its ad platform. Lookalike audiences allows you to upload a list of your customers (assuming you know their email address) and it will identify other users on Facebook who “look like” those customers. You can then target only those people with advertising, people you know are a lot like your customers.
     
  4. Email Marketing – Implement an email marketing program where you collect information about your subscribers that allows you to segment your lists. Instead of delivering the same email at the same time to your entire list, you can use what you know about their interests, habits, demographics and geographic location to send them customized and personalized messages. This is a proven strategy to increase the effectiveness of your emails.
     
  5. Surveys and Focus Groups – Listen to your customers. They will tell you things you never knew. Basic surveys – whether they are done online, in person, over the phone, or through the mail – can help you further define who your customers are, what they like, who they buy from, and how you can help them better. Use that research to craft better messaging, improve your products and services, and find more people like them in the marketplace.

How to Save Money by Spending Smarter

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This is a post for marketers. But it could just as easily apply to anyone’s personal finances.

If it’s your job to put together a marketing budget, or manage one, you’re probably already thinking about 2014. I know I am.

For many, budgeting can be more of a nuisance than anything else. We might like it if we could just look at what we did this year and say, we’re going to do more of that.

But in order to deliver real results with your marketing this year, I recommend making some tough choices.

  1. Start making a list of what worked and what didn’t. Assuming you can measure the performance of different channels and different ads, order them based on the return they provided. Look at volume as well as cost, and create a list from best to worst.

  2. Starting with the best, ask yourself whether or not you can spend more of your money there and get the same return. If the answer is yes, do it.

  3. As you get down to the second half of the list, ask yourself why it did not perform better. Was it poorly executed or is there just less potential there? Did some parts of it work and others fail? Cut what you can and keep it as a test or just pull it out of your plan for next year altogether.

  4. When you’re done looking at what you have already done, it’s time to start thinking about what you have not done. Ask around within your industry, or get in touch with some advertising agencies or consultants and see what they would have you do. Find out where people are spending their marketing dollars and apportion some amount of money in your budget to test out these new opportunities.

By digging into the finer details and making the tough decisions about where you should be spending your money, you will be ensuring that your marketing dollars are spent more efficiently. And that will have a direct impact on your bottom line.