Submitted by hugof on
I'm trying to prove something to the senior management at my company. If any one could answer the below question or lead me to a source that could provide the answer that would be greatly appreciated.
Marketing budgets generally are determined by taking a percentage of sales. For example if you forecast $10MM in sales and you sent your marketing budget at 10% of sales, then your marketing budget would be $1MM.
So my question is what is the average percentage of sales most marketing budgets are set at?
On the surface, your calculation is correct. However, there has to be some basis for saying that your budget is 10%. A couple of years ago, I recall IBM's marketing being 11%, however, I was told it is normally in the 6 to 7% range (I did not go through their financials to confirm).
There is no standard. It depends on all the usual things - What type of product you have, your channels, where you are in the product life cycle, general economy, type of selling required, your 4 Ps, marketing mix and management preference.
You may have missed a couple of steps (or not, I am just goin on the limited info in your post). You need to do some working backwards. For example, you need to do some calculations to find your average sale value. Then how many sales you need to make to achieve your revenue goal.
After that, you can look your historical metrics of how many sales calls/leads per sale, length of sales cycle etc. Then look at how the previous marketing and promotion/sales budgets helped improve those numbers. Do you need more marketing or less? And where and when do you need it. After that, you calculate how much you need to spend.
Hope this helps.
Often targets are set as a percent of sales because there is no way to measure the impact of a marketing campaign. If you could demonstrate that 100,000 invested in marketing program X would result in 1,000,000 in sales for a product with 30% margins, then it wouldn't matter what the percentage was: that would be a great ROI.
How do you define marketing? In some firms, telephone sales is part of "direct marketing" and in others it's part of Sales. Does engineering do product feature management, or does marketing? Your firm and your industry will have common practices that vary. I've seen successful firms that spent less than 5%, and unsuccessful ones that spent way over 10%.
Finally, what are you trying to "prove ... to the senior management"? Perhaps there is another approach that would help you acheive your goal (which I presume is some contribution to company performance).
I talked to a relative of mine who works in sales at an advertising firm. He said that the average that he sees is 4% of sales goes towards marketing.
It would be easier to give you a more exact figure knowing the industry or objective of the marketing.
I agree with the group below - it really depends a few unanswered questions. What market you are in? Are you B2B or B2C? What costs and activities are associated with your budget? Have you taken salaries and benefits into account? What is your dept responsible for and what is Sales (telemarketing, lead entry) and Product Management/Marketing (demo equipment) responsible for? Your company's revenue and market share would also play a factor. Until more details are provided I would blindly say that 3-4% is a safe average.
If it was a direct percentage, you could simply put every penny you have in it to generate more sales. If $1,000 gets you $10,000 in sales, and $10,000 gets you $100,000 in sales, you'd be a fool not to borrow money to get more sales!
Truth is life just ain't that simple. :)