Mary, a marketing manager, recently posted a question to the SMPS listserv. Her question was as follows:
I am looking for a way to compare a company’s total annual Marketing costs
that includes everything: marketing staff cost for labor and expenses,
technical staff labor and expense cost for both business development and
proposals, and the marketing budget with an industry standard. We have
reviewed the Zweig White industry numbers for total marketing costs as a
percentage of net revenue. However, because these numbers are not based on
comparable costs across companies they do not provide a true comparison.
Does anyone know of an industry standard such as total marketing cost as a
percentage of net revenue that is based on comparable standard costs? If
so, please advise and many thanks.
Mary
Scott Braley of Braleyconsulting always has something insightful to say. Here is his response.
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We are happy to share specific numbers and trends we see in the industry.
The “not based on comparable costs across companies” begs a question that I
believe is best discussed by phone. Specifically, what comparable costs do
you wish to compare.
As with all surveys, the data is based on question asked. There are multiple
sources of data (SMPS, ZW, PSMJ, AIA, ACEC, our own data, your own data,
etc.).
So, willing do discuss with you or others who wish. Beyond specific
questions, we find the various surveys good for their published purposes.
On a “recommendation” note …. our experience, both as practitioner (group
leader, lead marketer, managing principal of international firm) and as
management/marketing consultant (full time since 97/98) the key is
year-over-year benchmarking and performance management using your own
numbers. What others spend in this context fringes on “entertainment”
unless/until your expenditures create a differentiator (positive or
negative) for your firm.
Public surveys are useful in sanity checks, as well as negotiating or
decision leverage (e.g., we should start/stop this behavior because we are
well out of line with the general trends of the industry). We have found
this particularly helpful when a recalcitrant individual within a firm
simply will not listen to internal logic or arguments regarding marketing/bd
costs.
Public survey referencing has a downside. When you benchmark to means and
medians, you run the risk of becoming an “average” firm.
Finally, three key factors should not be overlooked. First, performance
management is the key. It makes little difference what others do so long as
your are performing well. Two, the counter-intuitive fact is that as the
market tightens and competition rises, investment in marketing costs
(increase) may be exactly what produces desired results. Third, mathematic
benchmarks and ratios get skewed when other factors change as the market
changes (e.g., staff reductions which are necessary and warranted will in
and of themselves change the marketing $/staff ratio, reducing a fee just to
get work to cover overhead/keep staff with in and of itself change the
$/revenue ratio, public sector work with prescribed/predictable overhead
allowances and profit margins will in and of itself change the marketing
expenditures as % of overhead and revenue ratios, etc.).
Glad to help, just give us a call if/as you wish.
Regards,
Scott
Bernie Siben, of Siben Consult LLC, responded:
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All of what Scott Braley said about marketing costs is right on the money
(no pun intended).
The only thought I have to add regarding “comparable costs across companies”
is the following: it is a very interesting concept, but it pre-supposes that
there are multiple companies that are EXACTLY alike, operating in EXACTLY
the same manner, with EXACTLY the same goals and attitudes.
Does this exist in real life – no.
If some other firm is spending significantly more or less than you are, they
will probably have their reasons, but those reasons probably have to do with
strategic decisions, which they may be comfortable sharing with another
firm. I think, as Scott said, if you are doing well, if your costs seem
reasonable and the ROI is good, be happy and don’t obsess over what some
other firm may be doing.
Happy New Year, everyone!
Warmest regards,
Bernie Siben, CPSM
[…] Try as you might to find a legitimate rule of thumb (5-13% of total revenue is a common one), there is no “apples-to-apples” comparison that answers, “how much should our firm spend on marketing?” […]