Vantage Point: Ideas and advice to improve your marketing

Allocating Your Marketing Budget

by Kirsten Chapman, principal

This is the time of year when most companies are finalizing the year’s budget. One question we get a lot is: “How much should we allocate to our marketing budget?”

KC Associates has worked with over 150 IT companies and we’ve collected some pretty good data on this over the years. We see, on average, most small to mid-sized software companies spend about 14% of revenues on marketing. And we’ve found that services companies spend much less — about 4-6% of revenues in mid-sized to large organizations and nearly 9% in smaller ones. This includes internal staffing costs and outsourced marketing services (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 on 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 our clients create their marketing plans. Essentially, all companies need collateral and other sales materials that directly 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 non-staff-related marketing budget):

Public relations/social media (35% to 45%)
Advertising/online promotions (35% to 40%)
Trade shows (15% to 20%)
Information assets, e.g. white papers, collateral, user scenarios (0% to 20%)

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):

Online promotions (15% to 50%)
Direct marketing/telemarketing (15% to 40%)
Public relations/social media (20% to 25%)
Seminars/events (10% to 15%)
Trade shows (10% to 15%)
Information assets (10% to 15%)

If your primary objective is to build credibility, consider allocating your budget for these key tactics this way (% of total marketing budget):

Public relations/social media (50% to 60%)
Seminars/events (20% to 30%)
Information assets (20% to 30%)
Online promotions (10% to 20%)

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.

Budgeting is more of an art than a science. These principles are only to give you some guidelines to consider during your budgeting process, but they should be a good start.