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This question has been answered, and points have been awarded.
Marketing Expense To Sales Ratio
Posted by Anonymous on
8/5/2008 at 10:01 PM ET
What is the average marketing expense to sales ratios for Consumer Package Goods companies and technology companies?
Peter (henna gaijin)
8/6/2008 at 12:24 AM
This is almost an impossible question to answer. First, you asked about 2 broad swaths of industries, and each industry is different. Actually, within each industry, you will find many differences. And even within these subcategories you will find different companies do different things, based on (among other things) how much growth they are trying to achieve.
So, to make a long answer short, the range would have huge variations, enough to make it almost meaningless.
Oh, you may want to search the questions, as this has been asked many times, and perhaps in some people did take a shot at providing numerical responses (though you will have to weed through the many responses like mine, that say we really can't respond).
8/6/2008 at 3:03 AM
While I agree with Peter, I take it you want average numbers to contrast CPG with technology companies. From my own experience, the average for CPG companies lies between 5% and 10%; i.e. anything lower than 5% raises eyebrows on the sustainability of brands and business, while budgets over 10% need to be justified based on growth projections, see e.g.
I have a lot less experience with technology companies, but would expect the ratio to be higher, i.e. 10%-20%. The reason is that awareness of and trust in the brand are more important than direct product experience for technology versus consumer packaged goods companies. Imagine yourself being kitchen tissues versus a sound system. In the case of kitchen tissues, you have recently bought in the category and may simply try a new product you see in the store because it is a small variation on the good old, low cost and low risk. In the case of a sound system, you have not purchased in the category for years, technologies may have changed, and you are likely to form a brand consideration set before going into any store.
As a result, technology companies have to and do try harder to get the marketing message out and maintain their brand equity. Would love to know from everyone whether their experience agrees with my presumption...
8/6/2008 at 7:27 PM
As Peter suggests, there is no good answer to your question. Even if there were a way to calculate the number, it would be meaningless.
First, not every company defines its marketing expense the same way. Some include sales or distribution costs, some don't. Some include marketing overhead, some don't. Etc.
Next, the range (as Peter says) is enormous ... from less than 1% to something approaching 50%, or even more. The percentage is a result of two numbers that don't always track together.
Third, different companies in different industries have different objectives and competitive needs. A new company with no sales may be spending MORE than their annual sales -- maybe as much as 1000% or more -- while a mature company spends only 5%. What's the average? Other companies may be trying to grow market share (and spending a lot more than a competitor that is coasting).
Finally, even if you had the answer what good would it do? Surely you wouldn't make a decision about what is right for your company (or any company) based on those ratios. You don't take ratios to the bank.
Best approach: (1) Determine your objective; (2) Develop a marketing plan that will deliver the objective; (3) Figure out how much it will cost to implement the marketing plan.
If the total cost is more than the objective is worth, you have two options: You can develop a less expensive marketing plan that may have some greater risk involved (i.e., might not deliver the objective); or you can revisit the objective and see if it's realistic and worth the likely cost to achieve it.
In either case, the ratio of your marketing cost to sales is irrelevant.
8/6/2008 at 8:06 PM
Two other points -
First, I think that marketers sometimes misuse these ratios because if there is an increase in marketing cost, they expect to see a similar increase in sales. Since sales are often impacted by other external influences, so a change in one (marketing cost) would not necessarily result in a change in the other of a similar magnitude (sales).
The second point, and what I think is a better approach, is to create internal trends of these two measures, which would include external influences (e.g., competitive, regulatory, etc.), internal policy changes, etc. In that way, you benchmark against your own successes as opposed to someone else's. Not only can you not directly control anyone else's costs or sales, but since you don't know all of the factors that may influence a change in someone else's numbers, you could easily draw wrong conclusions based on your perceptions of their data.
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