In the mid 90s, Steve Jobs took a company on the brink of extinction and turned it into the largest and most successful brand in the world. The Apple of the 90s looks a whole lot shinier today, sitting pretty at the top of Forbes most valuable brands list for the third year in a row. So, how did Jobs do it? Besides being a visionary and perfectionist, Steve Jobs was a genius marketer. He understood the vital role marketing plays in a company’s success, which explains why Apple and many of the most successful companies in the world spend more on marketing and sales than they do on research and development. A strong brand and marketing strategy is a powerful asset and Jobs knew it.
Determining the affect of marketing on a company’s growth is not black and white. There are many factors that combine to create a successful and growing business. However, without marketing and sales a company gets very little, if any, promotion or exposure, meaning the chances of growth are slim to none. This is a well-known fact among marketers, evident in the amount of dollars successful corporations allocate towards sales and marketing every year. In 2014, Microsoft, Cisco, Quest Diagnostics, Intel, Salesforce, Constant Contact, LinkedIn, Marketo, Bottomline Technologies, Marin Software, IDEXX Laboratories, Tempur Sealy, Tableau and Twitter among many more all had marketing and sales budgets that were greater than 14% of revenue, some spending as much as 50%! All of these companies also grew year-over-year.
So, how does a company determine how much of their budget to spend on marketing? We decided to look at a handful of some of the most successful large and mid-sized companies across a range of industries to find out how much they allocate for marketing and what they get in return.
Is 10% the Magic Number?
According to a 2014 Gartner Research study, “companies spent on average 10.2% of their annual 2014 revenue on overall marketing, with 50% of companies planning to increase [in 2015] to an average of 10.4%.” Ten percent — the magic number you will likely hear whenever you ask how much of your revenue you should spend on marketing. But is that true for everyone? What about a company in its growth phase vs. a well-established brand like Apple? Is 10% really the magic number and if so, what does a 10% investment in marketing get you in ROI?
According to a 2014 CMO survey published by the American Marketing Association and Duke University, companies with:
- less than $25 million in revenue spent an average of 11% on marketing
- $25-$99 million in revenue spent an average of 9% on marketing
The study also broke down the averages for marketing investment as a percentage of revenue by business type:
- B2B Product Businesses: 10.6%
- B2B Service Businesses: 10.1%
- B2C Product Businesses: 16.3%
- B2C Service Businesses: 10.9%
So while the 10% number may be right for some businesses, it is definitely not a one size fits all figure.
Salesforce, Marketo and Constant Contact are in the business of marketing and sales management software. And they believe in what they are selling. Just take a look at their numbers. Salesforce invests 53% of their revenue into sales and marketing! 53%! Think about that for a minute. That’s just over half of the $4.1 billion in revenue generated in 2014. What do they get in return for such a hefty investment? They get growth! In 2014 Salesforce grew by 33% over the previous year. What’s more, Salesforce has a 16% market share of the CRM industry, according to Gartner, which is greater than some of the most well known CRM providers—Microsoft, SAP and Oracle.
Constant Contact, an email marketing company with 2014 revenue of roughly $331 million invested 38% of their revenue into sales and marketing, which resulted in growth of 16% over the previous year. According to Spyfu, they have a $200,000-$300,000 monthly PPC budget (does not include PPC management fees). They have the third largest market share in the email marketing space at 13.7%, according to Datanyze.
Both Constant Contact and Salesforce far out-spent on marketing and sales compared to research and development (Salesforce spent 15% on R&D; Constant Contact spent 16% on R&D), a trend that is consistent across most industries, including pharmaceuticals, manufacturing and technology.
Tableau, a younger and smaller company, that went public in 2013, has now become one of the fastest growing companies in the 55-year history of business analytics software, thanks to demand for visual analytics and a large investment in sales and marketing. According to the Tableau 2014 annual financial report, investment in marketing is expected to increase in 2015 and the company “expects sales and marketing expenses to be our largest category of operating expenses as we continue to expand our business.”
Here’s a quick breakdown:
One thing is clear here—10% isn’t the magic number. At least for these marketing mavens, who are targeting growth and doing so very successfully thanks to their investment in the services they sell.
Social Media Spenders
Much like Salesforce and Constant Contact, Twitter and LinkedIn, two extremely successful social media companies, invested heavily in marketing and sales in 2014 and were generously compensated. Twitter saw 111% growth with a 44% investment in sales and marketing. 111%! Now that’s growth! LinkedIn invested slightly less, with 35% of revenue going towards sales and marketing, but still saw a healthy return of 45% growth year-over-year.
Here’s the breakdown:
In the technological age, it is no surprise that technology companies dominated Forbes list of top brands in 2014. Microsoft, Intel, Google and Apple are four successful, well-known, multi-national companies. As monsters in their industry, they are established, have much higher revenue and are not looking for the same type of exposure as a smaller company might be. While they clearly have the revenue, do these established brands need to keep investing in marketing? The answer is yes, just not as aggressively. As Horace Dediu, founder of independent research firm Asymco and a former Nokia business development manager said in a Reuters article, “The stronger, more differentiated the product, the less it needs to be propped up by advertising (referring to Apples ad spend).”
Here are their numbers for 2014:
Marketing in Manufacturing
Similar to the other industries examined, manufacturing companies are investing in marketing and sales and their investment rates seem to be quite uniform at around 20% of revenue.
Here’s how it breaks down for the three manufacturers we examined:
In the 2013 Cost of Recruiting an Undergrad Student Report, higher ed consulting group Noel-Levitz was quoted as saying, “the median cost of recruiting each new student at a private university is $2,433 and $457 at public universities.” It is important to note that each of the below educational companies categorizes their marketing spend a bit differently.
Where is the Marketing Money Being Spent?
As the economy stabilizes and begins to rebound, marketing budgets remain healthy and are predicted to grow, mostly around digital and content marketing. According to the Content Marketing Institute, as of 2014:
- The most effective B2B marketers spend 39% of their marketing budgets on content
- 59% of marketers expect their organization’s content marketing budget to increase spending in the next 12 months
Similarly, the Custom Content Council said:
- Marketing budgets are heading up 13.7% year-over-year, and content will make up 37% of that spending plan (2013)
Overall, companies are spending money on marketing because it matters to the bottom line. The amount each company spends differs according to a number of factors including business type, revenue and growth goals, but the message is clear: Unless you are Apple, spending less than 10% of your revenue isn’t going to cut it. In order to see growth, companies, especially companies in their growth phase, need to invest heavily in the mechanism that promotes, sells and creates this growth. That mechanism is marketing.
If you need help defining your budget and establishing a marketing strategy that works, creating measurable results and driving growth, give us a shout.
Here is the complete infographic for your viewing pleasure:
It is important to note that companies typically report their marketing spend under one of two categories: Sales and Marketing or Selling, General and Administrative (SG&A). We have denoted how each company categorizes their marketing spend after each figure in the piece. For more information and detail on what is included in each company’s sales and marketing budget or SG&A budget, please refer to their individual financial statements linked below.
*All company data in this piece has been rounded to the nearest whole number and was derived from the 2014 Annual Financial Reports. Click on the links below to be directed to the company’s financial statement.
Salesforce’s 2014 Annual Report
Constant Contact’s 2014 Annual Report
Twitter‘s 2014 Annual Report
LinkedIn’s 2014 Annual Report
Microsoft’s 2014 Annual Report
Intel’s 2014 Annual Report
Apple’s 2014 Annual Report
Tabeau’s 2014 Annual Report
Google’s 2014 Annual Report
Rackspace’s 2014 Annual Report
Oracle’s 2014 Annual Report
IDEXX Laboratories 2014 Annual Report
Temper Sealy International’s 2014 Annual Report
Marketo’s 2014 Annual Report
Manhattan Associates 2014 Annual Report
Bottomline Technologies 2014 Annual Report
Marin Software’s 2014 Annual Report
Grand Canyon University’s 2014 Annual Report
American Public Education INC’s 2014 Annual Report