CEOs and CFOs are often frustrated with spending a large percent of sales on marketing and sales expenses without knowing their impact. Three key metrics can change that.
CEOs and CFOs are often frustrated with spending a large percent of sales on marketing and sales expenses and not being able to know their impact. As important, CMOs need more definitive marketing budget metrics to justify requests for marketing budgets.
A company's marketing budget typically includes both marketing and sales expenses—direct and indirect costs incurred while promoting and selling products or services. While the average marketing budget as a percentage of revenue was 9.1% in 2023, 10% is often used as a rule of thumb.
Marketing Budget – Expense Impact
The marketing budget as a percent of sales allows for meaningful comparisons. Among major companies, this percent varies from 6% of sales for Apple to 10.7% for Microsoft. For Nike, their "Demand Creation Expenses" as a percent of sales decreased from 10.9% in 2014 to 7.9% in 2023, showing steadily reduced spending while achieving higher productivity.
Marketing Budget – Sales Impact
What does the marketing budget produce in terms of sales? Sales productivity per $1 of marketing budget varied from $9.3 (Microsoft) to $16.7 (Apple) with an average of $14.50 of sales per $1 of marketing budget. For Nike, their marketing budget sales productivity per $1 grew from $9.2B (2014) to $12.6B (2023).
Marketing Budget – Profit Impact
The marketing budget's contribution to overhead expenses and profits can be measured with Net Marketing Contribution (NMC):
The NMC as a percentage of sales for five major companies ranged from 8.6% (Amazon) to 58.3% (Microsoft) with an average of 36%. The profit impact per $1 of marketing budget varied from $1.11 (Amazon) to $6.35 (Apple) with an average of $4.24.
Conclusion
The data to create these three marketing budget metrics are readily available. Using them enables CEOs and CFOs to assess the cost and impact of their investment in the marketing budget. For CMOs, these marketing budget metrics allow them to demonstrate what their marketing budget produced and support requests for additional budget.