Setting a Competitive Marketing Budget: Part 1

What should your firm spend each year on marketing? It's a simple question. But I think you'll agree it's never been a particularly easy one to answer. In this month's Pivot, we tackle this thorny issue head-on. We tell you what real-world professional service firms are spending today, so you can put your own marketing budget in perspective. To make the numbers even more relevant, we break the results down by industry and firm size. And we let you in on a surprise: the highest-growing firms spend a lot less than you'd expect.

In a survey released this month, we asked the CEOs of 100 professional service firms what percentage of 2007 revenues they devoted to marketing activities. The results varied widely — some companies spent almost nothing, while a few invested more than a fifth of their revenues on marketing.

Spend More to Make More

Our survey results conveyed one message loud and clear: companies that spend more on marketing tend to grow faster. Admittedly, 2007 was a banner year in the Washington, DC area's professional services market: even the 20% of firms that spent the least on marketing grew by 13.6% on average. But the 20% of firms that spent the most on marketing grew by 32.8% — almost two-and-a-half times more!

Spending Levels by Industry Segment

Across the segments we surveyed (management consulting, IT, finance/accounting & AEC), marketing budgets averaged 5.1%. But this average varies considerably when broken out by industry segment. AEC firms spent barely 3%, while IT firms invested over 7% of revenues. Interestingly, AEC firms also experienced the lowest growth of the four segments surveyed (though they still grew at a healthy 12.8% rate in 2007).

Marketing Budgets by Firm Size

When we looked at the numbers by firm size, we found that companies with revenues under $10 million had the highest marketing budgets as a percentage of total revenues. But the firms in the $10-49.9 million range experienced the highest rate of growth per marketing dollar spent.

The High-Growth Paradox

But a big surprise still awaited us. While there was a well-defined correlation between marketing spend and growth rates, this relationship collapsed when we analyzed the firms with the highest growth rates. The 22 companies that grew 20% or more in 2007 and 2008 (projected), actually spent less than average on marketing: 4.8%. How did that happen? What's behind this apparent anomaly? Next month, we'll tell you how they did it — the strategies high-growth companies use to make the most efficient use of their marketing dollars.

For a more detailed analysis and to learn more about the habits of high-growth firms, download Hinge's 2008 competitive strategy study, Defying Gravity. It's free, and no registration is required.