This is a great question, and one that many B2B companies struggle with. Let’s look at the B2B marketing budgets of two of the most successful B2B companies in the past 40+ years.
These two companies are IBM and Microsoft.
First of all, nobody has ever accused either of these two companies of having the best technology, and yet both of them have survived through many recessions, to become two of the most successful companies in history.
They both had technology that was good enough. They both had, and still have, products and services that meet the needs of their current customers and marketplace. Their technology works well enough to meet those needs.
And yet ironically, both have been sued by the US government for predatory and monopolistic business practices.
And when Steve Jobs was alive, Apple also fit into this category. And to this day, they still do, but a few people are predicting Apple’s downfall now too. We’ll have to see.
It’s interesting to note that all of these companies are technology companies, where there has been exponential growth and decline in many other technology companies.
It should also be noted that IBM has gained much of its revenue from services over the past 10 to 15 years. But a lot of that service revenue is helping their clients use technology better.
So, what do these three companies spend on marketing and sales?
It was difficult to find what Apple spends on marketing and sales, because all of their internal salaries are put into the same bucket in the financial reporting.
However, IBM and Microsoft split their marketing and sales expenses into one expense item. Both of these companies spend between 21% and 23% of revenue every year on marketing and sales.
Paradoxically, they each spend only about 15% of revenue on Research and Development. This means they spend 50% more of revenue on marketing and sales then they do on R&D. Apple spends about 30% of revenue on marketing, sales and administration expenses, but also about 15% on R&D.
Does your company spend in that ratio on marketing and sales?
So why would three of the most successful technology companies in history spend 50% more on marketing and sales than on R&D.
Because they know that you really don’t have to have the best technology to succeed, you MUST, however, have the best marketing. Steve Jobs was one of the greatest marketers that ever lived.
When a friend joined IBM Canada in the mid 70’s, they put him, and several hundred other new recruits, through a nine month training program, with about 25 people in each class. They trained them in three basic categories.
- How computers work.
- General business knowledge, like finance, operations, etc.
- Marketing and sales.
And by far, the most time was spent on marketing and sales. How best to sell their products and services, with all kinds of role plays for selling to clients.
Now selling and marketing were quite different back then, but I want you to understand my point. IBM knew that the best way to grow their business was to produce the best marketers and sales people any company could have. And IBM made sure you were, or you didn’t last with the company.
IBM doesn’t train like that anymore. I assume because of costs. And I haven’t found any technology companies that train their sales people and marketers at all any more, and haven’t for about the last thirty years. And yet, when technology people hire sales and marketers, they expect these people to be fully trained. What a paradox.
So, what does your company spend on marketing and sales?
You need to be the best marketer in your marketplace to succeed in today’s Internet world. You need to spend at least 15% of your revenues on marketing and sales, and preferably over 20% of revenues to really grow.
If you are a relatively new company, you should spend between 30% to 40% of your revenues to grow. Then, let the marketplace tell you what your product and service should look like.
If you do not spend at least 20% of revenues on sales and marketing, then your company will have a very difficult time not just growing, but even surviving.
Remember, all you need to do is meet your clients and prospects needs to grow. You do not need to exceed them greatly.