In an economic downturn the first thing most executives do is reduce marketing spend, and fire a lot of people. The exact opposite of the approach Thomas Watson Sr. took at IBM in the 1930s during the Great Depression. He took a long view and with good fortune (the New Deal), radically accelerated IBM's growth. Competitors were left chasing IBM's shadow for decades.
We are unsurprisingly seeing the same short-term behavior in Silicon Valley today, with over-funded and inefficient startups, run by inexperienced CEOs, cutting costs, letting people go, and generally panicking. Doesn't help that VCs are panicking too.
Regrettably, lots of marketing folks on the way out at those companies, in addition to budgets sliced and diced. The opposite of what executives should do, and the opposite of what Thomas Watson Sr. did at IBM nearly 100 years ago.
I believe executives should maintain marketing investments at this time because we are entering the "Beyond Product Era." A business environment where a company's competitive advantage is not product or service differentiation, but the ability to effectively market business outcomes.
What is the Beyond Product Era?
Credit to Peep Laja, Founder at CXL, who articulated my thinking about this idea much better than I ever could. He recently wrote:
A winning strategy 10 years ago: build an objectively better product + some marketing.
A winning strategy today: great product + win on things beyond the product (brand, narrative, positioning, messaging, POV marketing).
You absolutely need a strong product, but it's not enough anymore.
To win, you need to make smart plays about things beyond the product: how you position it, the stories you tell, what kind of marketing you do, how you do messaging, building a brand, and so on.
The key ingredient to winning: speeding up feedback loops to find what resonates with the customers, faster.
Peep argues that a "better product" is now table stakes. Executives who think their competitive advantage is product, or talent, or a unique understanding of process, should give some thought to whether that is still true.
Marketing budgets in the Beyond Product Era
It was a tough couple of years for marketers, with budgets down significantly during the COVID 19 pandemic. The good news is that budgets are now returning to historic norms. (Well, they were until a few months ago.)
So, how much should companies invest in their marketing function to win in the Beyond Product Era? While the answer is "it depends," there is enough data to provide benchmarks you can take to your executives or board.
Benchmark #1: Gartner CMO Spend Survey
Marketing budgets have risen to 9.5% of total company revenue in 2022.
The figure represents an increase from the 6.4% seen in 2021, but still lags pre-pandemic levels. Marketing spending averaged 10.9% of company revenue between 2018 and 2020 in Gartner’s surveys.
Gartner says, 9.5% of total revenue in 2022. How are you tracking?
Benchmark #2: Deloitte/Duke CMO Survey
If your board asks the inevitable questions about comparison industry, company type, size, stage, etc., turn to the CMO Survey from Deloitte and Duke University.
I'll share some indicative data, but strongly recommend you download the report and find the research most relevant to your business.
- Economic Sector: B2B Product, 6.70%
- Economic Sector: B2B Services, 7.51%1
- Industry Sector: Service Consulting, 7.75%2
- Industry Sector: Technology (Software/Platform), 10.01%
- By revenue range: $10-$25M, 7.12%3
- By Employee Count: 50-99, 10.95%4
An average marketing investment for a company in B2B Services/Consulting, with revenue around $25M, and headcount around 100, is 8.33%. (Avg. 1,2,3,4.) Less than but roughly aligned with Gartner's generalized findings. Mind you, at $25M revenue even one percentage point is significant.
Benchmark #3: The General Rule
There are two "general rules" most marketers reference in lieu of specific data like that shared above.
- 5% to maintain market share
- 8% to grow market share
That's benchmark #3.
It's well under the Gartner and Deloitte data, but it's at least a baseline you can reference. It also forces a conversation about what you're attempting to achieve: growth, or not?
Benchmark #4: Other companies
A quick google on "marketing budget benchmarks" will return a lot of anecdotal information that becomes useful when supported by the Gartner or Deloitte data.
I found a post back a while ago (cannot find the link) that provided the following data for 2019:
- Apple, 6%
- Google, 12%
- Salesforce, 46%
You will find this data in quarterly filings, since these companies publicly listed. An aside, quarterly filings and annual statements are a good source of market intelligence.
If the Salesforce number seems wildly out of range, it was not uncommon for high growth SaaS businesses to invest 40-50% of revenue on sales and marketing activities.
Related, Salesforce in a post How to Create a Marketing Budget for a Small Business, cite statistics that state marketing budgets in a similar range:
- For firms with $25 million or less in sales revenue, marketing is 53% of the overall budget.
- Firms with fewer than 100 employees allocate 46% of their budget to marketing.
I assume that these numbers are for venture-backed startups executing a "growth at all costs" strategy. More established and mature businesses invariably spend less, and Salesforce cites Deloitte CMO Survey data to support this:
- B2B companies that sell services allocate 12% of their revenue toward promoting their business.
Marketing investments in 2022
Pressure on marketing investments will continue into 2022 for executives driven by quarterly performance, as they hack as much cost out of their business as possible.
Some people don't want to hear, what they don't want to hear.
Far-sighted executives on the other hand know that to win, they need to make smart plays beyond the product: how it's positioned, the stories they tell, what kind of marketing they do, how they do messaging, and how they build a brand.
At the same time, CFOs are rightly looking to understand how marketing investments are delivering a return. They'll be asking questions about ROI, an accounting efficiency metric. We should be able to answer those questions.
We should also be able to talk to marketing effectiveness. How investments deliver long-term outcomes like investment efficiency and improved sales, how brand delivers price premiums and profit, and how marketing is a non-linear, time-lagged multiplier of business performance.
It is a great time to be a marketer. Good luck to us all.