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Marketing Budget Should _ % Of Operation Budget?
Posted By: stratts2 on 7/15/2005 5:42 PM (CST) 250 Points
Is there a specific standard percentage that we could say the marketing budget should be _ % of the operation budget to be successful. Or the standard marketing budget is _% of the operation budget?

Posted by: mgoodman Member Response
7/15/2005 6:43 PM (CST)
There is NOT a specific standard percentage. In fact, it would be a real mistake to utilize such a number if it existed.

That's because each category and each market and each situation is so different from others that an average is meaningless. The range is probably from 1% to 60%, or even more. It depends on the nature of the company, the industry, the company's objectives, what competition is doing, what the marketing strategy is, what you include as a marketing expense, and a dozen other factors.

If we DID come up with a number, what would you do with it? It's like asking what the average temperature is in the world. It might be accurate, but it won't help you decide whether to wear a parka or a bathing suit when you go outside. It's useless.
 
Posted by: amy* Member Response
7/15/2005 7:00 PM (CST)
This is hugely dependent on the particular industry. IBM and Cisco have a much different ratio than Proctor & Gamble, for example. Each industry has it's own metrics. HP has been trying to bring its percentages "more in line with the industry" for several years now. I would recommend contacting associations in your industry and asking them for averages, best practices, or rules of thumb, and looking on the web for recent surveys ... something like "marketing, percentage operations, , survey, research" ... for Google keywords.
 
Posted by: sham Accepted Answer
7/16/2005 12:16 AM (CST)
Stratts,
Mgoodman is right on target. there is no fixed percent for any company it largely depends on industry, the segment and the product you are going to market. even in the same industry, different companies have different % based on their product positioning, present sales, intended sales etc.
any company when launches a new product, will be having high budget for that product compared to existing products. the budget for FMCG companies will be many folds higher compared to capital goods companies.
each product and service is so unique that it should be addressed seperately and there is no set % for marketing budget and the idea itself looks vague.
just to give you an idea, the marketing budget of Pepsi and Coke are different in different markets based on their turnover products etc though both of them are in same soft drink category.
hope this helps you
 
Posted by: mdzugan Accepted Answer
7/17/2005 12:28 PM (CST)
Stratts,
There are publications that report average spending for various expense categories, one being marketing, for most industries. They are also rated by profitability, so that you can find out what the average is for the most profitable businesses in your industry. Call or visit your local library! Ask your question and they should be able to help you. If you do not have a local library with a good business section visit www.hillsearch.com and sign up for a trial membership.
 
Posted by: stevea Accepted Answer
7/19/2005 7:28 AM (CST)
Using averages and other people’s percentages is plain wrong! To paraphrase mgoodman, what’s the average colour of clothing worn by Marketing Professionals? It’s probably a kind of sludge brown. Are you proposing to wear such an outfit tomorrow?

Even a comparison between two very similar companies is of no use, because their underlying strategies and tactics are utterly different.

Here’s a better way to arrive at your percentage. What are your company’s goals which marketing is able to influence. They might be set in terms of revenue, profit, margin, market share, new products (Yes, that’s marketing too) or the share price.

Next look at all the tools in the marketing mix and ask yourselves the difficult questions – If I do the following activities, what will their impact be on the company’s goals. How will they add to turnover, product sales, market share.

Next ask how you will measure the impacts and set up a plan which cascades the impact of your marketing and sales activities down through sales, revenue and profit. Do it on a spreadsheet for the next couple of years. It’s not a forecast. Its an aspiration which you want to achieve.

Then cost the activities and see how the cost of the activities impacts the bottom line over the 24 months. Most marketers take fright at this stage because if their forecasts of incremental sales resulting from marketing activities is not set in La-la land, the bottom line goes red (Negative or showing a loss to those who don’t use accountant-speak) for a considerable period of time. Then it rises and after x months, cumulative profits exceed the profits that would have accrued had you done nothing. At that point, your marketing activities are showing a positive return to the company.

Repeat the exercise based on larger and smaller marketing spends. Don’t forget the equations of supply and demand or the Laffer curve – revenues and profits from marketing spend are not in a linear relationship.

Then you’ll have some real life projections of what a range of % marketing spend, whether it’s a % of turnover, profits or projected turnover, could mean to the company. These are your percentages!

Pick the nicest looking one and ask the FD if, were it to work, would the company’s projected cash-flow be able to sustain the expenditure over the period in question. Also ask the FD what the impact would be if the revenue figures failed to match your projections. (Apart from the fact that you’d lose your job, that is!)

Then comes the hard bit. This is not a magic formula which by getting the figures right, it is going to happen. You and the sales team are going to have to make it happen. The projected spend and the projected sales, costs and profits then become the Marketing plan – with full P&L implications. If the company think that it is feasible, you’ve got to make it work, so once its accepted, you have to switch from strategic mode (Your strategy has been accepted) into tactical mode which starts with working out what everyone is going to be doing next Monday onwards. And Tuesday, Wednesday and every day until you hit your figures.

Then you start again!

Good luck


Steve Alker
Unimax Solutions

 
Posted by: SRyan ;] Accepted Answer
7/22/2005 12:12 AM (CST)
Yeah, yeah, yeah... I'll bet you already knew that most people would answer, "It depends."

Here are two earlier postings that might be useful for you to look through:

Marketing Spend % Of Sales

Marketing expenditures benchmark

And remember this very important fact: 87% of all statistics are made up. ;]
 
Posted by: stevea Member Response
7/22/2005 9:17 PM (CST)
SRyan is wrong about the % of Marketing Stats that are made up. It's 82.357%

This was proven in a survey in which 51% of respondents said that my figure was correct, 49% said that SRyan's figure was correct and the other 22% said that the MarketingProfs moderator was correct.

100% of respondents agreed that we should occasionally be locked up for our own good.

Steve
 
Posted by: SRyan ;] Member Response
7/22/2005 11:41 PM (CST)
Trust Steve. He's the scientist.

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