What percentage of product cost is marketing?

The CMO Survey reveals trends about how marketing budgets are changing, which industries spend the most on marketing, and factors that influence budgets.

Marketers scrutinize their budgets. They wonder if theirs are on par with competitors. Are they spending too much or too little? Should categories such as headcount and social media be included? Which strategic and organizational factors influence budgets? The CMO Survey, sponsored by the Fuqua School of Business at Duke University, Deloitte LLP, and the American Marketing Association, explores these issues and uncovers marketing spending trends across industries.¹

The Biggest Spenders

Marketing budgets now comprise 11 percent of total company budgets on average (Figure 1), up slightly from 10.4 percent in February 2012, when the CMO Survey first asked this question. Consumer packaged goods companies allocate by far the largest percent of total company budget to marketing (nearly one quarter), followed by consumer services, tech software/biotech, communications/media, and mining/construction. Companies that spend the smallest portion of their budgets on marketing include transportation, manufacturing, and energy.

Meanwhile, companies on average spend 7.5 percent of total revenue on marketing, down from 8.5 percent in February 2012. Tech companies are the biggest spenders by this measure, allocating 13.8 percent of revenue to marketing compared with consumer packaged goods companies (10.9 percent).

What’s in the Marketing Budget?

Allocations within the marketing budget vary from company to company. For example, less than half (47.9 percent) of companies include expenses for marketing employees in their marketing budgets. Other companies may put marketing employee expenses into general and administrative expenses, sales, or other areas.  Most companies (61.3 percent) include direct expenses for marketing—such as advertising, trade promotions, and direct marketing—in their marketing budgets, but this varies by industry (Figure 2).

Nearly two-thirds of B2B product companies include direct expenses for marketing in their marketing budgets, while B2C product companies spend only 57 percent. This may be because B2C product companies characterize marketing expenses more broadly and integrate them into the budgets of sales or operations.

Just over half (51.4 percent) of companies include expenses for social media in their marketing budgets. This figure is higher at B2C product companies (57 percent) than at B2B product companies (50 percent), perhaps because B2B product companies spend less on social media or put social media costs in technology or corporate communications. Less than half of marketers include marketing analytics, marketing research, marketing training, and other overhead expenses in their marketing budgets.

Factors Influencing Marketing Budgets

A deeper dive into the survey data reveals four strategic factors that are correlated with the size of marketing budgets.

Marketing as a revenue driver. Marketing is responsible for leading revenue growth at 38.4 percent of companies, according to the CMO Survey. These companies have larger marketing budgets as a percentage of the overall company budget (14.5 percent) than companies that do not assign primary responsibility for revenue growth to marketing. At such companies, the marketing budget represents only 10.8 percent of the total budget. This is a significant difference, and it illustrates marketing’s ability to influence corporate strategy and potentially lead to larger marketing budgets.

Return on social media. In the survey, marketers were asked, “To what degree does the use of social media contribute to your company’s performance?” Marketing budgets for companies in the top third of rankings average 15.7 percent of total company budgets, as compared with 9.2 percent for companies ranked in the bottom third. These results show that generating a return on social media investments—not simply spending more—leads to larger marketing budgets.

Marketing analytics in decision-making. The use of analytics also correlates with larger marketing budgets. Respondents were asked, “In what percent of projects does your company use available or requested marketing analytics before a decision is made?” An examination of three groups—high, medium, and low usage rates—finds that marketing budgets are 70 percent larger in the high group (14.8 percent of total budgets) compared with the low group (8.7 percent).

Marketing and sales organization. The organization and management of marketing and sales is an important strategic decision, with major repercussions for company growth over time. According to the CMO Survey, 67 percent of companies give marketing and sales joint responsibility; 13 percent do not have a sales function; 10 percent put sales in charge of marketing; 7.5 percent put marketing in charge of sales; and 2.5 percent do not have a marketing function. A deeper analysis reveals that marketing spending is higher at companies that give marketing responsibility for sales (17.7 percent of overall budgets) than at firms where sales is responsible for marketing (10.1 percent of budgets). Marketing’s more strategic, customer-driven focus can help ensure that sales activities do not become tactical and short-term. When the sales function sits within marketing, sales can be driven to focus on the acquisition and retention of the most valuable customers for the long run.

—by Christine Moorman, T. Austin Finch senior professor of business administration at the Fuqua School of Business at Duke University and director of The CMO Survey.

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1. The CMO Survey was launched in 2008 and is conducted twice a year. The latest edition, completed in August 2016, was based on an online survey of 427 senior marketers at U.S. for-profit companies, including B2C and B2B firms.

PUBLISHED ON: Jan. 24, 2017 12:01 am ET

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