Perhaps one of the most common (and reasonable) questions for anyone starting out on the process of planning an AEC business’s marketing budget is: “How much should we allocate for marketing?” Recently, a Society for Marketing Professional Services member asked on the association’s Certified Professional Services Marketer (CPSM) Listserve this question: “Does anyone know where I can find statistics on marketing/bd budgets? Is it a % of revenue?”
Here are some of the answers (no one is identified here as they are responding on a semi-private Listserve, but all are credible and experienced marketers):
A consultant
I don’t have resources. But I have been in the industry for many years. It depends on whether you are referring to a start up or established business. And whether there is a plan in place or not. Starting from scratch is always more costly. Maintaining is less.
On average, your marketing/bd budget should be anywhere between 4-6% of total annual revenue.
That has always been my theory.
A marketing service provider
3-5% sounds right based on my experience. That does not include the salaries of the marketing staff. It also does not include coop funds that you might get from vendors if you are in an industry where vendors give out marketing coop funds. The coop funds are added to the funds allocated to marketing by the company.
An architect’s marketer
Totally agree with (previous responder). One thing I might add…..the 4% would be for a well established market….if you are pursuing a new market sector, the spending can be as high as 10%. We create separate budgets for each market sector that rolls into an aggregate budget and we track by individual markets.
A general contractor
Check the SMPS Marketing Survey…it has some information on % of revenue from the survey. (Editor’s note: I believe you would need to be an SMPS member to view this.)
A second architect’s marketer
I asked this same question of my colleagues in the Mid-Atlantic a few years ago.
I found that firms had varied mixes of marketing, sales, and BD costs. Most, however, were spending a total of 7-14% of revenue on these combined efforts (including salaries).
Another consultant
7-14% has been my experience, but this really depends on the make up of your firm (size, services, market, and geographical locations). A great reference is Lisbeth Quebe’s book Plan It (available at the SMPS Bookstore). The book has great information on developing a marketing budget.
Once you read these responses, you’ll understand why the snappy answer to this question, “It Depends” is really not that far off the mark. Are you counting salary costs — especially those of principals and rainmakers — and are you considering the interface between marketing and business development in calculating your numbers? Are you primarily maintaining existing accounts and relationships or are you breaking into a new market? What is the “ticket price” of a typical transaction in your business?
In my Constru
ction Marketing Ideas book I suggest a wide range of budgets for marketing and business development ranging from 5 to 25 per cent of projected revenues. The highest number would apply in new business development or in businesses where business development expenses are for relatively small ticket items or which (by industry standards) require a high business development expense. (Remember, I am counting salaries, including those of rainmakers and the portion of the Principal’s time in marketing and business development) for this figure.
If your marketing and business development costs are greater than 25 per cent, I would be concerned about sustainability. After a certain point, you will have trouble delivering enough value to your current and potential clients to justify this leel of expense — when BD costs get too high, the only businesses that succeed are operating scams or near-scams. Of course, you may have to spend more in critical or start-up situations; in these cases, i suggest your “budget” should more be in sweat/effort and creativity than cash.
At the low end, it is unlikely you are doing even the barest minimum if your marketing budget is less than five per cent. In this situation, you have a largely captive and loyal client base, your princples and staff are spending more time on client service than business development, and you are using the budget mainly to keep a little more new stuff coming in the door. The lower number also is reasonable if you exclude salaries and actual business development costs, assuming these are out of different budgets.
The issue of determining a marketing budget is a great one. I struggle with it every year that I prepare an annual budget for the company. And, I really wish that there was some simple rule of thumb that I could use but, I haven’t found one that works for me yet.
From a General Contractor’s perspective, pegging marketing budgets at 4% of total revenues is way off the mark. As a rule of thumb, most GC’s struggle to put 2.5 to 3.0% of total revenue on the bottom line. Basing the marketing budget on total revenue doesn’t work out that well.
One issue to be clarified is to define what and who are included in the marketing effort and whether or not their salaries are to be broken up into their various job duties. For example, separate from our marketing person, our CEO and Project Managers ususlly get heavily involved in the marketing and sales efforts. Do you allocate part of their time to the marketing budget? We try to keep it simple and not segregate their costs.
We use one full time marketing person on staff for whom we establish a budget consisting of their salary and about 50% of that salary for undefined support. Other specific marketing tasks like newsletters, website, brochures, etc. are listed as line items that the marketing person is tasked to living with.
When we decide to pursue a new marketing direction, we approach it like a regular project and attempt to estimate the full costs of the effort. We identify the parts and pieces that we need and then we track it in much the same manner as our projects. And, for the unknowns, we do throw in a contingency in our estimate.
I would be interested in seeing how others do it.
Mark:
An interesting question is whether (in a strategic approach) increasing the marketing budget to attract more high margin work would result in a pay-off. In other words if virtually all of your business is highly competitive fixed bid work, but you see some opportunities to develop negotiated price/design-construct or other possibly higher margin projects, can special marketing budget allocations to attact this work pay off long term.
(The challenge is realize is the business must still make a profit in the meantime.)