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 seventh 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 effect 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 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 toward sales and marketing every year. In 2016/17, MindBody, Salesforce, Bottomline Technologies, Tableau, Oracle and Johnson & Johnson all had marketing and sales budgets that were greater than 20% of revenue, some spending close to 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?
Ten percent — this is 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? As budgets continue to climb for the third year in a row, many companies — especially those with more than $5 billion in revenue — are abandoning the 10% rule in favor of bigger budgets, with a heavy focus on digital marketing.
According to a 2016-2017 Gartner Research study, companies are now spending roughly 12% of annual revenue on overall marketing. The study concluded that “larger companies (>$5 billion revenue) spend 13% of revenue on marketing, while smaller companies ($250 million to $500 million revenue) spend roughly 10% of annual revenue.”
A 2017 CMO survey published by the American Marketing Association and Duke University pegged the numbers a bit lower, reporting that across all industries businesses spend 11.4% of budget on marketing and only 6.9% of revenue on marketing. Of course, these figures vary wildly when you drill down into each industry.
Percent of revenue by industry:
- Education: 18.5%
- Consumer services: 17.4%
- Transportation: 11.2%
- Consumer Packaged Goods: 11%
- Service Consulting: 9.4%
- Tech/Software/Biotech: 8.5%
- Communications/Media: 6.6%
- Healthcare: 6.2%
- Banking/Finance/Insurance: 3.9%
- Retail/Wholesale: 3.8%
- Energy: 2.2%
- Mining/Construction: 2%
Marketing is responsible for leading revenue growth at 38.4 percent of companies, according to the CMO Survey. “These companies have larger marketing budgets as a percentage of the overall company budget (14.5 percent) than companies that do not assign primary responsibility for revenue growth to marketing,” reported the Wall Street Journal. “At such companies, the marketing budget represents only 10.8 percent of the total budget. This is a significant difference, and it illustrates marketing’s ability to influence corporate strategy and potentially lead to larger marketing budgets.”
So, while the 10% number may be right for some businesses, it is definitely not a one-size-fits-all figure.
These studies offer great insight into marketing spend across industries; but they only offer averages. We wanted to know what actual, individual companies were spending, from the small guys to the big kahunas. So, we set out to do what no writer wants to do: math. Luckily most of the 10-Ks we examined did most of the math for us … nevertheless there were numbers involved. Almost immediately, MailChimp tried to throw us for a loop with their unique, not so SEC friendly take on the annual report. But then we remembered they were owned by Rocket Science Group and we were back on track! Here is what we discovered (broken down by industry).
Salesforce and MindBody 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 49% of their revenue into sales and marketing! 49%! Think about that for a minute. That’s nearly half of the $6.67 billion in revenue generated in 2016. What do they get in return for such a hefty investment? They get growth! In 2016 Salesforce grew by 24% over the previous year. What’s more, Salesforce has a 19.7% market share of the CRM industry, which is greater than some of the most well-known CRM providers — Microsoft, SAP and Oracle.
MindBody, a cloud-based business management software for the wellness services industry with a 2016 revenue of $139 million, invested 40% of their revenue into sales and marketing, which resulted in 37% growth year-over-year.
Both MindBody and Salesforce far out-spent on marketing and sales compared to research and development (Salesforce spent 14% on R&D; MindBody spent 22% 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 57-year history of business analytics software, thanks to demand for visual analytics and a large investment in sales and marketing. According to a 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.” Fast-forward two years, and Tableau’s 2016 year-end financial statement reflects this investment, with their revenue doubling from $412.6 million in 2014 to $826.9 million in 2016.
Here’s a quick breakdown:
- MindBody – 40% of revenue invested in marketing, 37% revenue growth year-over-year
- Salesforce – 49% of revenue invested in sales and marketing, 24% revenue growth year-over-year
- Tableau – 58% of revenue invested in sales and marketing, 27% revenue growth year-over-year
- Manhattan Associates – 7.9% of revenue invested in sales and marketing, 8.7% revenue growth year-over-year
- Bottomline Technologies – 24.5% of revenue invested in sales and marketing, 3.7% revenue growth year-over-year
One thing is clear here — 10% isn’t the magic number. At least for these software and marketing mavens, who are targeting growth and doing so very successfully thanks to their investment in showcasing the services they sell.
In the digital age, it is no surprise that technology companies dominated the Forbes list of top brands in 2016. Microsoft, Google, Apple and Intel are four successful, well-known, multinational 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 Apple’s ad spend).”
Here are their numbers for 2017 (note: if 2017 numbers were not available at the time of writing we used 2016 data):
- Microsoft – 17% of revenue invested in sales and marketing, 5% revenue growth year-over-year
- Google (FY 2016) – 12.3% of revenue invested in sales and marketing, 20.4% revenue growth year-over-year
- Apple – 7% of revenue invested in selling, general and administrative, 6% revenue growth year-over-year
- Intel (FY 2016) – 14% of revenue invested in sales and marketing, 7% revenue growth year-over-year
- Oracle – 22% of revenue invested in sales and marketing, 2% growth year-over-year
Marketing in Manufacturing
Similar to the other industries examined, manufacturing companies are making significant investments in marketing and sales.
Here’s how it breaks down for the two manufacturers we examined:
- IDEXX Laboratories (FY 2016) – 12.7% of revenue spent on sales and marketing, 10.9% revenue growth year-over-year
- Johnson & Johnson (FY 2016) – 27.7% of revenue spent on sales, marketing and administrative, 2.6% revenue growth year-over-year
In the 2016 Cost of Recruiting an Undergrad Student Report, higher ed consulting group Ruffalo Noel Levitz reported that four-year private institutions spend a median of $2,232 per new student. We looked at the numbers for a few publicly held education companies, including Grand Canyon University, a for-profit school; Strayer Education, an education holding company; and Bright Horizons, a child care and early education provider. Note that each organization categorized marketing expenses differently.
- Grand Canyon University (FY 2016) – 11.1% spent on marketing, promotional and advertising, 12.2% revenue growth year-over-year
- Strayer Education (FY 2016) – 17.9% of revenues spent on marketing, 1.53% revenue growth year-over-year
- Bright Horizons (FY 2016) – 10.4% spent on selling, general and administrative, 7.64% revenue growth year-over-year
Where is the Marketing Money Being Spent
Although the amount businesses spend may vary, how and where the money is being spent is pretty consistent: digital. “Marketing leaders spent more on their websites, digital commerce and digital advertising than on other categories in 2016,” reported Gartner. “Marketers spent 9% of their budgets on websites, the most out of 14 spend categories surveyed.”
- More than 70% of respondents agreed they can demonstrate, with metrics, how content marketing has increased audience engagement and their number of leads.
- The average percentage of total marketing budget spent on content marketing is 26% (among all respondents); the most successful, however, spend 40%, while the least successful spend 14%.
- 38% of all respondents expect their content marketing budget to increase in the next 12 months.
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:
All the data in this report has been rounded to the nearest whole number and derived from 2017 annual reports (if 2017 data was not available we used the 2016 10-K data).
Mindbody 2016 Annual Report:
Salesforce 2017 Annual Report:
Tableau 2016 Annual Report:
Manhattan Associates 2016 Annual Report:
Bottomline Technologies 2017 Annual Report: https://www.bottomline.com/application/files/5115/0764/8891/2017-Annual-Report.pdf
Microsoft 2017 Annual Report:
Google 2016 Annual report:
Apple 2017 Annual Report:
Intel 2016 Annual Report:
Oracle 2017 Annual Report:
IDEXX Laboratories 2016 Annual Report:
Johnson & Johnson 2016 Annual Report:
Grand Canyon University 2016 Annual Report:
Strayer Education 2016 Annual Report:
Bright Horizons 2016 Annual Report: