As we said in Measuring and Optimizing Marketing ROI, marketing ROI can be hard to measure, and many businesses don’t have a clear idea of how or why they’re spending on marketing. Marketing can get expensive, and return on investment isn’t always immediately obvious, particularly in B2B marketing. This can make allocating your marketing budget a bit of a leap of faith. Basing budget decisions on your goals and measuring progress with the right data, however, can remove much of the guesswork and result in a higher return on investment.

How Much Do I Spend On Marketing?

The answer to this question varies by industry. Businesses in the manufacturing and B2B sectors typically spend 5% to 12% of their revenue on marketing. Spending in this ballpark will help you keep pace with your competitors, but it might not be the optimal range for your particular business and goals.  

Then there’s the question of what to spend your budget on. There are lots of things you can spend your marketing budget on: PPC ads, traditional ads, content creation software, project management software, the hardware to run it on, and, of course, the marketing team themselves. How do you decide on a percentage of revenue to allocate to marketing, and then how do you determine how to spend that budget?

Goal-Based Budget Allocation

When you know your goals, these questions become easier to answer. Rather than choosing a percentage of revenue to devote to marketing based on your industry or competitors, consider your goals for marketing. If your goal is to generate awareness of your business, the necessary ad spend can eat up a large chunk of your budget, while customer retention requires a smaller budget. The first steps are understanding what your business does well, which customers you are best positioned to serve, and how you can reach them. If you’re still working out these strategic questions, check out our StrategyWerx blog to start getting a handle on business strategy.

Understanding your marketing goals is a matter of collecting data to get an overview of your business needs. The relevant metrics include:

Customer Lifetime Value is such an important metric that we devoted an entire article to it, which you can read here.

Customer Acquisition Cost is your total marketing spend over a period of time divided by the number of new customers acquired during that time period.

Customer Retention measures the percentage of customers who make a repeat purchase beyond their initial deal. This is a particularly important metric in B2B, where there are fewer overall customers.

These metrics will give you a picture of where you need to devote your marketing efforts, whether it’s to acquiring new customers, nurturing long-term relationships with existing customers, or to specific kinds of campaigns like brand awareness or lead generation.

Account for Testing and Reallocation

Even the best-laid plans face hurdles in execution. To paraphrase Prussian military commander Helmuth von Moltke, no plan survives first contact with the enemy. Or as Mike Tyson so eloquently put it, “Everybody has plans until they get hit.” Since marketing involves the art of persuading people, and human psychology is so easily swayed by uncontrollable factors from the weather to the news they read that morning, marketing plans have to be constantly tested and updated according to the needs of the moment.

Too many marketing budget meetings fail to account for this fact. To get the most out of your marketing budget, plan for everything to take longer—and cost more—than you expect. Everything from ad designs to email subject lines will need to be A/B tested. Surprisingly low email click-through rates will lead to rewrites. A lack of engagement on one social media platform will lead you to reconsider your research and refocus your efforts elsewhere. That’s because marketing is about people, and people always manage to surprise you.

Your marketing strategy should be as data-driven and thoroughly planned as possible, but you also have to be ready to adapt to changing circumstances and allocate the budget necessary to do so. If something doesn’t work, it’s only a failure if you can’t learn from it. The money wasn’t wasted if you were able to glean valuable insights into the reasons something worked or didn’t work.

There Is No One-Size-Fits-All Answer (Unfortunately)

This blog would have been much shorter if the answer to marketing budget allocation were simply to set your marketing budget to X% of revenue. Those kinds of estimates can serve as a starting point, but to maximize marketing ROI, it’s important to consider factors unique to your business.