The press release announcing Gartner’s 2016-2017 Chief Marketing Officer (CMO) Spend Survey showed that marketing budgets rose for the third straight year. Marketing budgets increased to 12 percent of company revenue in 2016, up from 11 percent in 2015. Fifty-seven percent of marketing leaders surveyed expect their budgets will increase further in 2017. Only 14 percent of marketers say they are bracing for budget cuts, but this is up from 3 percent just two years ago.
At Fusion Marketing Partners, we deal with lots of B2B companies and our experience echoes the Gartner research. Here are some observations about why marketing spend is on the rise and why you may be in a great position to justify a larger spend as you craft your 2017 marketing budget:
1. Prospects and customers spend more of their time with marketing assets than sales assets. Studies range on the exact statistics, but most strongly point to the fact that prospects do a lot of their research online, prior to engaging with a sales rep. If you don’t have the right resources to guide them, you lose the prospect to the competitor.
2. Throwing more sales reps into the mix is not solving the revenue challenge. You need a complete lead-to-revenue strategy that covers everything from creating initial awareness to closing deals.
3. Marketing has accepted a wider range of responsibilities ranging from customer experience to revenue–generating systems. As Jake Sorofman, research vice president at Gartner stated, “Over the last several years, we’ve witnessed an expansion of the CMO mandate, from what was largely a promotional role to what is now often seen as the growth engine for the business. … In more than 30 percent of organizations, at least some aspects of sales, IT and customer experience now report into the CMO.”
4. Smart marketing managers have learned how to prioritize spending on productive and measurable activities that tie into revenue. This ‘lead-to-revenue investment model’ makes the budget process more efficient and predictable. Read more about the top 10 sales and marketing metrics.
I’m often asked to advise companies on how to establish the correct marketing budget. In addition to the percentage of revenue described above, there are several other methods:
• Competitive Parity: With this method, you figure out what competitors are spending and then budget enough funds to keep up with, or surpass, the partner. The problem is, it’s usually difficult to find out what they are spending and their circumstances may be so different that a head-to-head comparison is not helpful.
• Objective and Task: This is our go-to method. We set the objectives, identify the tasks necessary to achieve those objectives and then determine the budget necessary to complete those tasks.
• Lifetime Value (LtV): The LtV method works in scenarios where it is worth spending more to obtain a new customer because they produce so much revenue over the time they do business with you. This will often produce much higher spending scenarios than the more traditional and formulaic methods. For example, Salesforce.com spent $25.4 million to achieve its first $5.4 million in revenue.
• What You Can Afford: Sometimes, your marketing spend is limited by the amount of money you have left over after other expenses — or the amount the CEO or CFO gives you to accomplish the mission.
• Lead-to-Revenue (L2R) Budgeting: With L2R, we establish the revenue targets and work backwards to determine how many opportunities, qualified leads and inquiries are needed to meet the revenue target. L2R is a highly effective way to make sure you spend the right amount on lead generation, but it is not so helpful when it comes to budgeting for other expenses like personnel, PR, website, etc.
Regardless of the marketing budget methodology you use, it is important to start the process early enough in the planning cycle to ensure the right allocation. If you truly believe (and I hope you do) that marketing has a big impact on revenue, you are doing your company a favor by helping them invest in an area that will have many positive benefits downstream.