What is the Right Marketing Budget for B2B Companies?

Whether you are a B2B product company or a B2B service firm, you and your competitors are spending on average between 10.4% and 12.6% of your company-wide budget for marketing. But, this can be misleading and may not be the best way to plan to plan a marketing budget for B2B companies.

When one drills down into specific industries, the numbers can change rapidly. For instance, the manufacturing sectors spends around 6% of its revenue on marketing. Oil, gas, and chemicals companies spend 0.5%. Startups spend around 5%.

The actual percentage of a company’s budget will be influenced not only by the industry, but by factors like company revenue performance, growth goals, and business needs.

Some amount of a B2B marketing budget will be utilized for brand building and customer satisfaction and feedback. But, the largest portion of most marketing budgets is dedicated to increasing sales for the B2B company.

How that marketing budget is allocated is also a variable. The top three priorities for most marketing budgets are:

• Web optimization
• Digital media and search
• Digital marketing

But, within the overall marketing budget is a lead generation component that directly supports sales activity, and ultimately, topline revenue.

B2B Marketing Budgets as a Percentage of Revenue

According to the U.S. Small Business Administration, small businesses (with revenue of $5 million or less) should allocate between 7% and 8% of their total revenue to marketing. This assumes that the business has gross margins of around 10-12 percent.

But, Deloitte reports that this number has risen since 2011 to around 13% in 2021. In the specific B2B product sector, the percentage is roughly 10% of revenue, and in the B2B services sector it is a bit higher, at 12%.

So, what IS the right marketing budget for YOUR B2B business?

You could allocate and spend too much of your revenue on marketing. OR you could allocate too little. How to determine a realistic budget that works for your business?

We recommend that your budget (especially a SMB business) should be determined by some of the factors listed below.

Determine Your Customer’s CLTV

Ultimately, the marketing budget will be driven by the Customer Long-Term Value (CLTV – or also referred to as CLV) of your new customer (minus delivery/production costs, plus overhead.)

For instance, you sell a widget like a nail that costs a few pennies to produce, and that you in turn sell at ‘retail’ for a few pennies over production costs. On its own, it would seem to not make sense to spend too much in marketing dollars to find a new buyer/client.

But, when you look at your current clients’ buying history, you might discover that each of your clients buy several million nails each year. And the average ‘lifetime’ of a current client is 10 years! Well, suddenly the LTV of a new clients starts to grow.

Based on a scenario like this, you might need to re-evaluate the marketing budget to more accurately reflect that revenue potential.

Or, you might sell a product like a HVAC system that has a ‘life’ of 15 years. Unless you are able to expand the sale to include an ongoing maintenance agreement, then the LTV of your next customer may be a bit more finite.

So, knowing these stats can help you to determine what is the right budget allocation for B2B marketing. But, you must also look at the allocation of the budget and its effectiveness as well. Which brings us to the next step.

How your marketing dollars are allocated is as important as how much you spend.

Test (and re-test) your Marketing Channels

According to Forrester, B2Bs will spend around 42% of their marketing budget online versus traditional ‘offline’ channels. And this is only going to grow.

This challenges some of the more historic B2B marketing channels. Get comfortable with new channels that may seem to not be ‘professional enough’. Although TikTok may not be our first suggestion, you may be surprised by what channels perform better than others. Content, video, and social media will grow as a percentage of budgets.

Content marketing is increasing to about 25% of marketing budgets. More than 75% of marketers indicate a strong commitment to content creation as a part of their marketing activity.

Get Feedback from your Activity and Adjust Accordingly

Ultimately, analytics will play a greater and greater role in marketing budgets. And setting up and managing the analytics has a cost of its own, whether it’s the added cost of platform modules dedicated to that purpose or a separate platform/third-party..

The right marketing budget for B2B companies will be driven by your goals and needs

Market-wide metrics and industry sector spending trends can give you a sense of where you might start your budgeting, but each business is unique. A new product launch might cause you or a competitor to allocate more marketing dollars. A top-market position might mean a lower budget makes sense. There is not a ‘cookie cutter’ formula for determining a budget.

If you are trying to determine your budget, it makes sense to look at it in context – how it aligns with your business strategy and what you need your marketing to do. And we can help you with that process. Contact us today to begin a discussion on your next marketing budget planning or read more about B2B marketing budgets here.