What should advertising agencies spend on their business development activities? I say more than you are! It is a topic of great debate among agencies and all businesses alike. Apple spends 7% of its revenue on sales and marketing, Tempur Sealy spends 15%, Oracle spends 20%, and Salesforce spends a whopping 56%. For B2B companies like yours, the simple answer is 6%. But it’s never simple.
There is a variety of data to help understand what businesses are spending on average by size and industry, but data specific to ad agencies is hard to find. If you have a source, please let us all know. I’ve talked to agencies and consultants about this. One agency spends only 1.5%, and another spends 30%. Both have impressive growth but in different ways and for different reasons. What is the right number for you?
According to an AMA and Duke University study, 10% is the average for B2B. Does that mean 10% is the right number for you? Not necessarily. There are many factors to consider however, numbers compiled from other industries provide reasonable averages for agencies to benchmark their practices.
In this post by Vital, they provide a lengthy review of key marketer spending percentages.
According to a Gartner Research study, “companies spent on average 10.2% of their annual revenue on overall marketing, with 50% of companies planning to increase to an average of 10.4%.”
Businesses with less than $25 million in revenue spent an average of 11% on marketing while those with $25-$99 million spent an average of 9% on marketing. While the 10% number may be right for some businesses, it is definitely not a one size fits all figure.
According to research in a post by Ed Marsh at Business2community.com:
- Inc’s article on budgeting for ’14 marketing notes that according to IDC the weighted marketing spend (as % of revenue) is 6.4%.
- Some marketing agencies angling for bigger contracts will suggest that B2B companies should spend up to 15%
- The SBA suggests that companies with less than $5M in revenue should normally spend 7-8%
What do agencies do with their 6%, 10%, or 15% business development budget? That is another not so simple question. Agencies vary greatly on this subject as well. No surprise. Some put a big chunk toward cold calling resources. Others spend more on conferences and networking. Some tip the scale on pitch-related costs while others spend disproportionately on lead generation.
Your specific circumstances, accounting methodology, and growth strategy will shape your budgeting choices. If your revenue is $1 million and your business development budget is 6%, you’ll have $60K to work with. Likewise, $5 million in revenue means a conservative $300K and $10 million in revenue means $600K.
If your agency overhead is top-heavy, your staff utilization is low, or you carry a lot of debt you are probably not going to be able to invest aggressively in your growth. If you run a lean organization, you probably have more flexibility to invest the industry averages. Regardless of the amount, it must generate a favorable ROI? The information I’ve been able to gather suggests a 1.5 – 3% ROI when it's all said and done. Are you spending more or less and what is your ROI?
Whatever your percentage is, if you want to get the most from your new business investment, I can show you how. All it takes is an initial investment in time to talk about your goals and how I can help.
Let's get more clients
If you'd like help turning your new business budget into a competitive advantage, let's talk. I am always open to discussing your business development challenges. If you like this post, sign up for my new business newsletter. Let's connect on LinkedIn to network, share resources, new ideas, or talk about the latest ad agency business development news. #LetsGrow!