How much should I invest in marketing?

First things first. Unfortunately, there is no exact amount that a company should invest in marketing each year. The right amount of investment in marketing depends on a variety of factors, which must be adjusted to suit the specific company. These factors include

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• The goals of the company

• The industry is corporate

• The stage of the company's life cycle

• The priorities of the marketing strategy

• The size of the company

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Of course, it also depends on the region in which the company is located and which target markets are to be addressed.

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Ok, but let me ask you a general question. How much should I invest in marketing? On average inve

German companies spend around 7.5% of their annual turnover on marketing. This is a good guideline for established companies. Start-ups and growth-oriented companies should invest up to 20 % of their annual turnover.

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To help you decide how much you should invest in marketing, we have summarized the most important decision factors for you in this article. So please read this article to the end to make your marketing investments as efficient as possible and to invest the right amount in marketing for your company.

Advantages of investing in marketing

Before you can decide how much to invest in marketing, you first need to know and understand all the benefits of marketing. Of course, everyone is aware that marketing should increase sales. But we have summarized here how the increase in sales is to be achieved and what other benefits investment in marketing offers.

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• Increase range

Properly designed marketing can increase the visibility of your company and reach more customers.

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• Increase requests

Targeted marketing increases the generation of "hot leads". These are potential customers who have asked your company for a solution or are looking very specifically for a product or service that you offer.

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• Increase in profitability

Efficiently designed marketing makes it possible to further support or expand the most profitable departments or product ranges of a company.

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• Gain a better brand position

A stronger brand position increases the trust factor of customers towards your company. This promotes sales growth, increases customer loyalty and allows customers to demand premium prices.

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• Discover more opportunities

Those who invest properly in marketing also invest in market research. In addition, marketing strengthens contact with the customer and thus provides a better understanding of the customer. This enables companies to recognize further opportunities, but also risks, at an early stage.

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• Continuous improvements

If marketing is seen as an investment, it is possible to evaluate these investments on a regular basis. This allows continuous improvement of our company's marketing measures.

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• Investing in growth

Investing in marketing also means investing in the growth of a company. Marketing supports precisely the area of your company that generates the customer inquiries needed to continue to support growth.

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• Marketing benefits for the HR department

Marketing can also be used as a direct recruitment tool. However, every marketing measure also helps indirectly in attracting new talent. The likelihood of new applicants increases with well-known companies. Current employees are also usually proud to work for a well-known company. This increases the retention rate and provides job security.

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It is almost impossible to list all the benefits of investing in marketing. Depending on the objective and the company, the benefits can vary greatly. For each company, the list of benefits can get longer and longer, depending on the size of the investment. In most cases, investments in marketing are even vital and one of the basic building blocks for long-term success.

Invest in marketing the right way

Investing in marketing is an important building block for the success of any business. For this reason, the marketing industry is very large and offers a variety of ways to invest in marketing. However, not every marketing approach is equally suited to every company. Goals must be individually assessed and priorities set. Hardly any company has the resources available to invest in all the possibilities that the world of marketing has to offer at the same time.

In order for you to invest in marketing correctly, your investments must be used in a targeted manner. To use the marketing budget correctly, two basic steps must first be carried out:

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1. Develop a marketing strategy

2. Create marketing plans

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How much you should invest in marketing will depend very much on the results of your market research. For example, if the market research from your marketing strategy shows that there are great opportunities in a new market segment, the marketing budget should be increased. If, on the other hand, the market research shows that your company has already reached its peak, customers are familiar with your company and your products, and you don't have much chance of growth, a lower budget will suffice.

In any case, a marketing strategy and marketing plans must be drawn up on this basis.

Develop a marketing strategy

A marketing strategy describes the medium to long-term orientation and objectives for all of a company's marketing measures. It includes all measures that the company must take in order to achieve the desired goals. Every marketing strategy is based on market research and other factors that are analyzed in detail. This is the only way to ensure that investments in marketing also support the desired company goals. Based on the insights gained, the individual building blocks of a marketing strategy can be put in place. These include

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• Define the market and establish framework conditions

• Define target groups and recognize niches

• Select marketing channels

• Pricing

• Determine the type and tone of communication for all channels

• Design and objectives of brand image

• Define customer journey

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The marketing strategy thus describes the overarching goals that are to be achieved later through marketing and advertising measures. A marketing strategy defines the medium to long-term orientation of the company and describes why various resources and budgets are required for marketing. Objectives in a marketing strategy are the basic building block for the advertising activities to be planned. One or more marketing plans can then be drawn up based on these objectives.

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How much should be invested in marketing therefore depends heavily on the strategic objectives of the marketing strategy. If a company wants to take advantage of the many benefits of marketing and address a broad customer segment, a correspondingly large budget must be made available. But this investment pays off. A marketing strategy provides support:

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1. Arouse customer interest

2. Turning potential buyers into customers

3. Increase customer loyalty

4. Differentiate from competitors and communicate strengths

5. To support further corporate goals

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A good marketing strategy not only serves to communicate externally, but also supports internal communication and brand building across departments.

Without defining a marketing strategy, efforts from different departments may pursue different goals or be directed in different directions. Such misguided marketing activities, defined without a unified goal, cost time, money and resources.

Create a marketing plan

The marketing plan addresses the specific measures that will be taken in a defined period of time in order to achieve the objectives of the marketing strategy. Depending on the length of the time period and the complexity of the marketing strategy, one or more marketing plans can be created. Marketing plans can therefore support different departments:

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• Distribution

• Online marketing

• Branding

• Public Relations

• Inbound Marketing

• Outbound Marketing

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Budgets are allocated based on the marketing plans. Exactly how much is to be invested in marketing and where the resources are best deployed is usually decided at this point.

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How much should be invested in marketing?

Now that we understand that a well-researched marketing strategy and specifically defined marketing plans are needed to properly invest in marketing, we can look more closely at the question of how much to invest in marketing .

As mentioned at the beginning of this article, there is no fixed amount that companies should invest in marketing. After all, what is an appropriate marketing budget? Is it 3% of annual turnover, as is the average figure for suppliers in the automotive industry? Or the 8 % to 10 % often found in the service sector? Or perhaps even the 30% of annual turnover that Red Bull invests in marketing every year?

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A guideline for how much should be invested in marketing is the respective industry average. Take a look at how much is invested in marketing on average in your industry. This will give you an initial indication of how much the competition invests in marketing and therefore what you probably need to do to be noticed by potential customers. However, if you are new to an industry or are trying to address a completely new customer segment, you should add at least another 25% to 50% to this figure. For example:

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Marketing investment industry average = 5 % of annual turnover 

Recommended marketing budget for industry newcomers = 7.5 % to 10 %

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It is often the case that the smaller the company, the more of its annual turnover needs to be invested in marketing. At the end of the day, only one factor is relevant. Are you being noticed by customers through your marketing measures? Even if a company is small and only generates a small turnover, advertising costs still incur certain basic costs. These must be covered. As a rough guide, we always recommend marketing expenditure of 7.5%, which is made up of 5% for marketing services and 2.5% for the media budget.

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Investigation methods

Guide values and rules of thumb only provide an initial insight into what you should probably invest in marketing. But there are also other ways to find out how much you should invest in marketing.

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• The percentage method

The most commonly used and simplest method is the percentage method. Here, a percentage of turnover is invested in marketing measures. This method is very quick and simple, and it also automatically takes into account the size of the company.

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• The competition-based method

This method looks at the marketing budget of the competition. The idea behind this strategy is to determine the value that your company needs in order to keep up. However, this method has the disadvantage that it lacks a target reference.

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• The update method

Established companies often make the mistake of using the extrapolation method. Here, the budget from the previous year is simply released again. Unfortunately, this also completely ignores the connection between the company's goals and the marketing budget.

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• The financial strength orientation method

No company can spend money that it does not have. The financial strength orientation method is therefore often used for companies with low free cash flow. The amount to be invested in marketing is decided based on the available financial resources.

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• The goal-oriented method

Probably the best method is the target-oriented method. It is based on the company's objectives and the opportunities set out in the marketing strategy and marketing plan. This method ensures that marketing is an investment and therefore achieves the desired objectives. Otherwise, marketing can quickly become a cost item with little positive impact.

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Take other costs into account

When deciding how much to invest in marketing, often only direct costs such as the creation of advertising material, media costs or cost-per-click are taken into consideration. However, other costs must also be taken into account, which are part of the investment in marketing:

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• Costs of creating a marketing strategy & marketing plans

• Costs for market research and competitor analyses

• Design costs for the design of advertising measures

• Travel expenses

• In-house training

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Depending on the form of marketing, various other costs may be incurred by the company. These include indirect costs such as the time spent by sales staff. When deciding how much you should invest in marketing, you need to keep these possible additional costs in mind.

Get the right marketing budget

Every year, different departments fight for the allocation of budgets. The marketing department must also be able to present itself convincingly in order to receive the desired budgets. Good preparation is the key word here. The conviction must be created that marketing is not a cost, but an investment in the success of the company. To achieve this, every investment must be linked to objectives that help the company in the short, medium or long term. Defending the marketing budget is not about getting the highest possible budget. It is about obtaining sufficient financial resources to be able to implement marketing measures correctly and thus achieve all the objectives of the marketing strategy.

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Conclusion

Unfortunately, there is no simple answer to how much should be invested in marketing. For this reason, many companies make the mistake of falling back on simple rules of thumb. However, this approach ignores the most important factor in marketing. Marketing is not about costs, but about investments. Only if marketing is designed correctly will the desired results be achieved. However, as marketing is a complex matter, it is often beyond the capabilities of individual companies as it requires a variety of different experts. MORE from Munich offers an alternative to having your own internal marketing department. MORE is your external marketing department and will join your company on a long-term basis to work with you to achieve your marketing and business goals. If you decide to work with MORE, you will not only gain an external marketing department, but a variety of experts who will help you decide how much to invest in marketing. This makes MORE the best marketing department you've ever had.

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