- GenAI Improves Software Engineering Productivity by 70%, says Study
- There’s a Critical Need for Robust Security Testing Solutions as Businesses Harness the Power of AI
- NextTech 2024: Explore the Future Insights of AI Advancements, Next-gen Tech, and Human-centric Approaches
- Industrial Metaverse Spend Increases as Immersive Engineering Use Cases take Hold
- AI Can Unlock New Ways to Communicate, But Focus on Getting Basics Right
- Eight Global Tech Companies Commit to Ethical AI in Collaboration with UNESCO
In his 2015 book The End of Average, Todd Rose warns against “averagarians” designing systems based on the mean or judging success in terms of the deviation from the mean. He highlights Gilbert Daniels, an anti-averager hero, whose research in the 1950s led the U.S. Air Force to design planes with personalized cockpit features to suit pilots of all shapes and sizes rather than just the average male pilot — an innovation that dramatically increased safety records.
Marketing strategy also hinges on the principle of acting on differences. Think segmentation: Marketers tend not to design a product or service for the average consumer. Indeed, polarizing brands such as Red Bull pride themselves on the notion that as many people hate their product as love it.
Yet when it comes to marketing budgets, a common but flawed practice is to use average figures touted by well-meaning researchers. Two of the most established CMO surveys that examine marketing budgets are The CMO Survey, conducted biannually by Duke University (and run by this article’s second author since 2008), and Gartner’s annual CMO Spend and Strategy Survey. The CMO Survey has found that 2023 marketing budgets, on average, represent 11% of revenues in the U.S., and Gartner has found that 2023 budgets represent 9.1% of total company revenues across North America and parts of Europe.1
We know from experience that these averages are too often taken at face value. When budgets are lower than average, CMOs inevitably yammer for more spending power. And when they are higher than average, the CFO can find reasons to tighten the financial thumbscrews.
We argue, however, that an average marketing budget can be highly misleading for planning purposes. CMOs should heed the Monty Python film Life of Brian — “You’re all individuals. … You’ve all got to work it out for yourselves!” — and select appropriate peer benchmarks. To help leaders do this, we analyzed marketing budget data through a new lens.
The Key Differentiator: A CMO’s Realm of Control
So if the average marketing budget is not correct, which size does fit? Well, it depends. First, the average glosses over systemic sector differences. As The CMO Survey shows, for example, at an average of 13.9% of revenues, B2C marketing budgets tend to be higher than B2B budgets, which average 9.3%. Taking a different view, product brands tend to have higher marketing budgets, at 11.4% of revenues, than service brands, at 10.3%. Companies with $10 million or less in sales have the largest budgets (16.8% of revenues), but this number drops to 9.5% for companies with $10 billion or more in sales. Similarly, budgets exceed 17% at companies with 50 or fewer employees, but they drop to 9.8% for companies with 10,000 or more.
But why does company size matter, and why are B2C and product brand budgets higher than B2B and service brand budgets? To examine this question, The CMO Survey asked 314 marketing leaders about the breadth of their strategic responsibilities. We found that a significant factor affecting marketing budgets is the realm of control CMOs have at different types of companies. The results highlight significant deviations in marketing budgets based on these responsibilities and entirely account for variations based on company size. In fact, the marketing responsibilities we refer to below account for over 71% of the differences between sectors. In other words, although a peer-benchmark budgeting approach might be appealing, it is also misleading.
Our research showed that in 28% of companies surveyed, marketers’ job descriptions did not extend beyond communications to operational responsibilities such as sales or e-commerce. And for those “comms-only” companies, marketing budgets were roughly half of the average, at 5.6%. (Almost universally, communication activities included positioning, brand advertising, digital brand promotion, PR, social media, and/or lead generation.) In B2B comms-only companies, marketing budgets stood at 5.9%, or less than two-thirds of the sector average, and in B2C companies, they stood at a meager 4% — less than one-third of the sector average. Comparisons for service (6.1%) and product brands (5.1%) tell a similar story. Surprisingly, for these comms-only brands, budgets are actually larger for B2B and service companies than for B2C and product brands — the opposite of what we see in the average analysis.
Strategic Marketers Have the Biggest Budgets
In companies where marketing is responsible not only for communications but also for at least one key operational activity — such as sales, distribution, customer service and experience, e-commerce, or customer relationship management — the average budget is higher, at about 7.6% of revenues.
As in the comms-only organizations, B2B budgets (8.1%) are higher than B2C budgets (5.7%). However, among these marketing-plus-operations companies, budgets are back to being higher for product brands (8.6%) than for service brands (6.8%), which makes sense given the potentially higher channel costs for the former. Having said that, even for this broader realm of control, budgets are still lower than the average, even at the sector level.
The real difference maker is the addition of at least one strategic activity, such as new products and innovation, market selection and entry, pricing, or growth, to a company’s marketing responsibilities. Among them are areas that business schools have traditionally taught as marketing functions but are not under the auspices of marketing in many companies. The average budget for marketing functions responsible for communications, operations, and strategy stands at 13.4% across companies. Among these, it is now higher for B2C brands (15%) than B2B brands (11.8%) because B2C marketers tend to have a broader realm of control than B2B marketers do. Interestingly, budgets for these companies are also higher for service (14.5%) than for product brands (12.8%), perhaps due to customer experience expenditures.
Many more areas of control could be considered. When marketing is responsible for privacy in addition to the more traditional marketing functions above, overall budgets leap to 17.7% of revenues. And when managing talent is added to the mix, marketing budgets account for a whopping 23% of revenues. However, comparisons here become unreliable, especially at the sector level, because there are relatively few companies at which marketing is responsible for areas such as talent (11.5%) or privacy (9%).
What’s the moral of the story? If your budget-setting process relies on averages as a benchmark or the wisdom of crowds, make sure you’re using the right crowd as a peer comparison. This requires identifying a benchmark that matches the responsibility profile for your company. Our CMO Survey analysis now provides a way to do so. While the above numbers don’t provide a personalized benchmark, they are far more meaningful than the broad averages typically kicked around in research reports and the popular press.
A final thought for CMOs is that it’s not all about the money. Above-average budgets come with above-average responsibilities. And that is a topic for organizational design: selecting a distribution of responsibilities that fits the company’s strategy and marketing capabilities.
- The difference in average budgets may be due to the different samples. Companies in Gartner’s survey are larger. Further, The CMO Survey data shows a negative correlation between total sales and marketing budgets as a percentage of sales.