For many, it’s budgeting season as companies work through their strategic plans for the coming year. This means something different in every B2B industrial company we surveyed:
Best practice suggests budgeting for marketing as a percentage of revenue target. Gartner research reports that marketing budgets have risen to 9.5% of revenue, up from a 2021 low.
Marketing Budgets as Percentage of Total Revenue. Credit: Gartner
Budgeting as a percentage of revenue targets allows a company’s marketing efforts to scale to match growth targets and to build a suitable funnel to feed sales. This approach is founded on an outcome-based perspective: focused on ROI from the start.
It also helps to provide a foil to a ‘bottom-up’ cost-based approach to budgeting—to ensure appropriate prioritization and to leave room for experimentation and strategic investment.
Given today’s business context, the rising percentage increase is warranted:
- Pandemic response consumed 2020 and thwarted many marketing efforts: trade shows were canceled and companies scrambled to move more of their activities to digital channels, with related start-up costs.
- 2021 was the great catchup. Fulfilling pent-up demand consumed sales teams while marketing planned what-if scenarios and focused energy and resources on digital transformation.
- 2022 a year of supply chain challenges and optimizing cash flow. With less backlog, the reduced marketing budget in many sectors resulted in a smaller funnel, and companies have focused on matching marketing and sales to their reduced capacity for production in the face of materials and labor shortages. Many market leaders are brand building to allow for emerging market entry or market share gains. For others, 2020 has been a refresh—an update of outdated collateral and other traditional assets.
As plans take shape for 2023, CEOs and CMOs face:
- Growing economic and geopolitical uncertainty
- Rising inflation, compensation, and margin threats
- Changing customer journeys and omnichannel marketing expectations
- A 2021 pull-back from agency resources to in-house for brand strategy, innovation, and marketing strategy development
Today, 58% of CMOs report their in-house teams lack the capabilities needed to execute their strategy and given high turnover and a talent shortage, many will need to look to outsourced marketing partners, particularly in marketing data and analytics, customer understanding, customer journeys, and marketing technology.
Strong marketing partners can help leaders succeed in 2023 with:
- Experimentation and scenario planning: design for increasing ambiguity and speed of change
- Fresh perspective: changing customer base due to high turnover, a retirement wave, and changing customer expectations demand an update to your customer assumptions
- Automation in marketing technology: improved efficiencies through marketing and sales automation and AI
- Localization and product rationalization: let voice of the customer and market research help guide your product localization and marketing localization, and any changes to product lines needed to improve profitability
Of the B2B industrial segments we serve, those with global reach, targeted approaches, and hardware-centric tech vary dramatically in their planning, company size and sophistication, and budgeting approach. The majority respond to current market conditions by increasing their investment in marketing to build their 2023 pipeline. The 9.5% guideline is appropriate for these segments, while SaaS software companies, in contrast, dedicate far more to marketing efforts given the nature of those companies’ cost structures.
The top-down, or percent of revenue target, approach is particularly useful to offset the ‘business as usual’ bias of costing, or ‘bottom up’, or percent increase from the prior year. Both approaches put the emphasis on continuing the past year's activities, without properly assessing their effectiveness or ROI, and adding new activities and demands on already strained internal teams. It also does not allow for A/B testing, core investments in marketing technology, and brand building that will allow the organization to scale, and undervalues strategic marketing, in which the customer and market helps to inform the company’s and technology’s direction.
Here’s where your peers are investing their marketing spend:
In offline investment, events and sponsorships are the biggest expense category. In our client base, this resonates: trade shows are back, and companies are refreshing their approach and using these face-to-face events to build brand awareness and engagement, shifting lead generation online.
As you begin to plan your marketing strategy and marketing budget for 2023, here are some key takeaways:
Budget is intent. Not just a finance exercise, budget planning helps to establish your intentions, whether those be in entering new markets, building market share, or improving measurability. Your budget should reflect your goals.
Aim for a healthy mix. The higher the revenue target, the more diverse your marketing mix should be. Start-up companies with limited budgets must choose carefully where to invest, and should think in terms of 3-4 cohesive campaigns, while more established companies should deliberately add channels to diversify their reach and improve their customer experience.
Plan for change. Scenario planning, A/B testing, and budget set-asides for opportunistic spending can help to hedge your bets during turbulent times.
It’s time for new tactics. This isn’t the year for ‘rinse and repeat.’ Add in elements of ABM, or Account Based Marketing, work through your approach to hybrid events, and crystallize your brand story to clarify your value proposition in a changing market.
Where would your budget have the biggest impact? Ask for a marketing assessment to leverage the activities that are providing you with the best customer acquisition rate today, and to gain fresh perspectives on areas of need.