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Fall is the time of year when most companies are getting next year’s budgets nailed down. One question we always hear is, “How much should we allocate to our marketing budget?” The answer is easy: SoftwareMinds' research shows that, on average, most software companies spend 14% of revenues for marketing. And we’ve found that services companies spend less —about 5-7% of revenues. This includes internal staffing costs and outsourced marketing management fees (typically about 50%) as well as expenses associated with execution (typically about 50%).
The more difficult question is, “How do we allocate our marketing budget?” And that’s a little more complicated than relying on industry averages (although they’re a good start) or last year as a benchmark; much depends on your business environment and goals.
Of course, companies want to increase awareness and generate leads. But there are other key issues to consider: Are you in a high, moderate or declining growth mode? Are you a market leader or trying to make inroads? Are your market and/or product mature, nascent or somewhere in between? Do you sell primarily direct or through channels? Who are your target buyers and how difficult are they to reach?
Over the years, we’ve developed guidelines for helping IT clients create their go-to-market plans. Essentially, all companies need collateral and other sales materials to support the selling process and buyers’ information needs, and your budget should include money to meet these needs. Our guidelines below focus on other key objectives like creating awareness, generating and managing leads, and building credibility.
If your primary objective is to build awareness, consider allocating your budget for these key tactics this way (% of total marketing budget):
If your primary objective is to generate leads to support the sales channel, consider allocating your budget for these key tactics this way (% of total marketing budget):
If your primary objective is to build credibility, consider allocating your budget for these key tactics this way (% of total marketing budget):
Your company may have other specific objectives, such as positioning for a merger/acquisition, going public or possibly expanding its sales channel. All of these objectives impact how you spend your marketing dollars.
As you know, budgeting is more of an art than a science. These principles are only to give you some guidelines to consider during your 2005 budgeting process.
*SoftwareMinds B2B Software Marketing: Best Practices & Budgets, 2004. KCA’s Principal, Kirsten Chapman, is a co-founder of SoftwareMinds, an independent software and IT services business operations research and publishing firm. The company has also published Software Product Management: Best Practices, 2004 and conducted custom research for Microsoft.