The Role of Marketing in Mergers & Acquisitions (The Tale of the Twinkie)
In 2012, Twinkie fans taught us an important lesson about marketing: When it comes to company valuation, customer loyalty is king.
How Kinesis Spends Our Marketing Dollars
We’ve talked at length before about the importance of setting a marketing budget, which marketing tactics work best, and how to maximize return on investment. I know, I know – we’re starting to sound a little like a broken record. But the fact is, we work with business owners across a number of industries, sizes, and growth stages… and marketing budgets tend to be the thing people are most curious about.
And it’s no wonder; there isn’t exactly a handbook. The life of a business owner would be so much easier if there existed one fundamental truth – a benchmark that could be used to guide budget-setting and decision-making across the board.
In particular, for those businesses who have never defined a formal marketing budget, it can be difficult to know where to start. In these cases, we find it helps to understand how your peers are allocating their resources.
We can provide any number of examples of our clients – what they spend, how they spend it, and the results they’ve seen – but we thought we’d instead start with ourselves. Because what kind of marketers would we be if we didn’t eat our own dogfood?
How to Set a Marketing Budget
First, a quick recap: Marketing investment is typically expressed as a percentage of gross annual revenue. So, if your business makes $1mm annually and spends $100k on marketing, your budget expressed in this way would be 10%.
Industry Averages
As you can see, across multiple reputable sources industry-wide, the average marketing budget for B2B organizations falls somewhere between 6% and 12%. In other words, that same $1mm business should be spending roughly $60k-$120k annually on marketing.
Where the company falls on this spectrum often boils down to business maturity and growth stage. In early brand-building years, companies should expect to spend substantially more to establish a marketing presence. (Since these efforts have capital value, many companies classify them as an asset on the balance sheet.) Later in the business lifecycle, focus may shift to ongoing marketing support and lead generation – where costs may decrease, until the next major marketing push.
Kinesis Client Averages
That said, Kinesis clients tend to look a little different than these industry averages. That’s because:
- Many of our clients are spending on marketing for the first time, and learning how to integrate it into their P&L (walking before running).
- We only work with a specific type of company, and the tools and processes we’ve developed provide economy of scale (in other words, you don’t have to pay to invent the wheel – we’ve already built it).
We tend to break our clients down into four groups based on their business objectives. Here are some examples of how marketing budgets break down on our current client roster:
As you can see, Kinesis clients traditionally allocate roughly half to two-thirds of the industry average to their marketing budgets.
You may notice that marketing spend among this group is largely determined by business goals. When building a brand, entering a new market, or otherwise ambitiously growing the company, marketing activity (and therefore spend) are typically a little higher. In maintenance years or when the company’s brand is well-established, that number may decrease.
What Kinesis Spends on Marketing (and How)
But enough about abstract, anonymized companies. Let’s get down to brass tacks: What about Kinesis ourselves? Where do we sit amongst this crowd?
The short answer:
6.4%
That’s right – Kinesis falls on the low-end of the spectrum for industry averages, but the high-end alongside our clients.
As you might expect, Kinesis has spent years building marketing infrastructure. We have a mature marketing operation for our size, which allows us to take a consistent, measured approach to generating marketing results. (But of course, this percentage would increase significantly if we had to build a new website, rebrand the company, or promote a new business offering.)
Not to mention, our decades of marketing experience provide us with CRM data and a wealth of test-and-learn insights. Being able to measure our marketing inputs and outputs makes it easier to plan for the right investment level.
But where do those dollars go? What does Kinesis’ marketing mix look like?
While there is no one-size-fits-all when it comes to marketing strategy, Kinesis activity tends to fall into a few different buckets:
As we’ve mentioned before, content marketing (and SEO in particular) is one of our greatest sources of new business – so it makes sense that this would also represent our greatest allocation of marketing resources. By tailoring our content to terms likely to be searched by our target audience, we are able to capture folks looking for things like “Portland marketing firm,” “branding agency,” “values-based marketing,” and so on. That effort includes this blog and our Accelerator email series – but also being a guest contributor on other websites, LinkedIn activity, and launching the Kinesis book: Marketing From the Inside Out.
Also increasingly relevant initiatives are event marketing (hosting our own events, speaking at others, or general networking) and materials to support our sales process (physical brochures, sales decks, referral cheat sheets, etc.).
The Results of Our Marketing Investment
You may be wondering what kind of success we’ve seen with this marketing budget and mix – because what good are the numbers if you’re not tracking results?
At Kinesis, those results can be measured most closely in company growth. Frequent readers will recall the results of our marketing efforts when the Portland Business Journal named us one of Portland’s fastest-growing companies for five straight years (an especially credible award since it’s validated by 3rd-party CPAs and demonstrates the ability to sustain financial performance).
More recently, we’ve begun to measure our marketing success in terms of new revenue generated. In 2018, for instance, every marketing dollar spent yielded about $7 in new business. Perhaps more significantly, this 7X ROI is a conservative number – it doesn’t count the value of income from clients who work with us for multiple years (which is most often the case, and why you should really understand your Lifetime Customer Value).
The Takeaway
Now, before you run to the phone and call me looking for a 7X ROI on your marketing, I want to inject a dose of reality (yep, we’re marketers who actually tell the truth). Remember how I told you’ve we’ve spent years building a marketing infrastructure? The great returns we saw in 2018 didn’t just happen overnight. Indeed, high-performing marketing takes the same discipline, faith, and long-term commitment you’ve used to build your business.
But if you’re excited by what I’ve just shared, give me a call. I’d love to show you how we achieved these goals without a dedicated salesperson. Just imagine the multiplying effect for companies large enough to have a full-time, high-performing sales team. That opportunity isn’t just one marketer’s crazy theory…it’s a very real opportunity that’s come from years of putting our money where our mouth is.
