How B2B Companies Budget For Marketing
Surveys show CEOs of business-to-business companies want marketing to focus on two priorities: 1) Customer acquisition, retention and engagement and 2) Brand building, awareness and rebranding. But how much do you need to spend on marketing to deliver on those priorities? And what do you spend it on?
In this article, I’ll share a few marketing benchmarks to help answer a few key questions:
How are marketing budgets changing in the current economy?
How much should we be spending on marketing?
How should we be balancing our internal and external resources to be the most effective?
How are companies allocating the marketing budget across online and offline channels?
The primary sources of information are surveys of chief marketing officers, vice presidents of marketing, and other leaders who are responsible for the marketing budget. These surveys span B2C, B2B, and hybrid companies, so I’ve culled through the B2B results to find the answers to questions you might have. I’ll keep this article updated as new information is published.How are marketing budgets changing in 2023?
According to the CMO Survey published in September 2022, more than 60 percent of business-to-business companies are less optimistic about the economy in the next year (B2C companies are even more pessimistic). The March 2023 report shows this trend continuing with more than half of B2B companies decreasing marketing spending due to inflationary pressures.
How much should we be spending on marketing?
The CMO Survey, which is conducted by the Fuqua School of Business at Duke University and sponsored by Deloitte and the American Marketing Association, covers a wide range of business types and sizes which gives small to mid-market companies a good benchmark. It is also one of the only surveys I’ve seen that reports on marketing spending both as a percentage of total revenue and of the operating budget, which gives companies two useful metrics. Here are the averages reported in March 2023:
Total marketing spend as a percentage of operating budget and revenue. Source: CMO Survey, March 2023
Marketing budget as a percent of revenue
B2B services and product companies are spending anywhere from 8.5 to 10.3 percent of revenue on marketing, respectively. So, the baseline marketing budget for a $20 million company would be between $1.7 and $2.1 million.
This revenue-based model is a good starting point for estimating the marketing funding required to maintain top-line growth for the year. A company must then factor in gross margins, growth goals, and other factors to determine the right level of funding for them.
Marketing spend as a percent of operating budget
In 2023, the average B2B services and product company is spending 7.9 to 10.9 percent of its operating budget on marketing. At 55 percent gross margins, a $20 million company would have a marketing budget of $800,000 to $1.2 million, significantly less than the revenue model and down from 2022 forecasts.
Companies should start with both models to establish a working range, then set the marketing budget based on the objectives that need to be achieved for the year. If the company is in an early stage growth mode, it will want to lean toward a heavier investment. If it’s a large, established company looking to maintain market share, the marketing spend may be more modest.
Incremental spending for growth
If a company is pushing for high year-over-year revenue growth, launching new products, extending into new markets, or rebranding the entire organization, it will need incremental marketing spend during that period. For example, if that $20 million company is rebranding, it might need an additional $200,000 - $300,000 on top of the baseline marketing budget for the development and launch of the new brand identity.
How are companies budgeting for internal and external marketing resources?
According to the Gartner CMO Survey in 2022, the mix of marketing resources has remained relatively consistent over the last few years. The budget is almost equally distributed to paid media, marketing technology, labor, and outside agencies.
The budget allocation for marketing resources is equally divided in four catagories and has remained relatively consistent in recent years. Source: Gartner CMO Survey 2022.
The labor issue is a particularly challenging one for marketing leaders with 60 percent saying they lack the in-house capabilities to deliver on their strategy. Building a marketing organization requires staffing for such a wide range of skills that are in high demand, it can be hard to find enough people to fill the jobs. Instead, companies are finding a healthy balance between in-house and agency resources to plan, manage and execute marketing programs.
How is the marketing budget being allocated across channels?
After years of shifting toward online marketing, companies are starting to settle in on a roughly equal balance between online and offline channels. Across industries, companies are allocating approximately 56 percent of the budget to online channels and 44 percent offline.
Data from the Duke/Deloitte/AMA CMO Survey shows smaller companies (under $25 million in revenue) lean more heavily on digital marketing as they are establishing themselves in the market, but spending shifts toward a 50/50 split once they grow larger. This is typically the stage when broader brand awareness must be built to reach new audiences that will drive continued growth for the company.
After years of growth in digital marketing, online and offline spending is finding a balance. Source: Gartner CMO Survey 2022.
How are companies allocating their online marketing budget?
Across industries, companies are spending 38 percent of their online budget on social, search, display and digital video advertising to generate awareness and interest in their offerings. Business-to-business companies, such as those in IT & Business Services (see chart), lean even more heavily on these categories spending 40 to 45 percent of their budget here. Another third of the budget is going to owned media including SEO, content marketing, email marketing and social.
B2B companies lean heavily on paid and owned media. Source: Gartner CMO Survey 2022.
How are companies spending their offline marketing budget?
As we emerge from the pandemic, event marketing and sponsorships are making a strong comeback. In the Gartner CMO survey, B2B-oriented segments reported investing a quarter of their offline budget in event marketing and another 15 percent in sponsorships.
Face-to-face is making a comeback in offline B2B marketing. Source: Gartner CMO Survey 2022.
Key takeaways
These survey results are great for getting an overall perspective on what other companies are doing, but within those numbers are hundreds of different strategies, budgets, allocations and approaches. Every company is unique and the guidelines above are only starting points.
If there are only a few nuggets of wisdom B2B companies should take away from this article, these are probably the most important:
Budget between 5 and 8 percent of revenue for marketing, adjusting for gross margins and growth objectives
Balance in-house and agency resources for maximum efficiency and agility
Lean toward online marketing in the early stages of the company, then strike a more even balance with offline marketing as you grow
Invest in a variety of online and offline marketing tactics, monitor the results, and adjust as needed to fit your prospects’ decision-making process.
Optimize the balance between short-term demand generation and long-term brand building