Growing a successful technology service provider business pretty much always requires a defined marketing strategy. A critical business roadmap, the TSP marketing strategy identifies where a business sits in a specific market and how its offerings will be priced, promoted, and sold.
Within that ‘promoted’ section sits the essential marketing budget — that bucket of money a business will use to ultimately get buyer eyeballs (and dollars) on its products or services. Yet, while most TSPs understand the importance of the marketing budget, many also struggle to define just how much to allot to the budget — and how that budget should be spent.
This is especially true for growing technology service provider teams where finite resources are stretched thin across research and development, operations, sales, marketing, and more.
Gartner recently conducted a benchmark study about this common technology service provider budgeting challenge — revealing actionable steps that growing teams can take to define and allocate an appropriate marketing budget.
Below, we give a high-level overview of three key steps identified by Gartner to help your team define a marketing budget.
3 Steps Every Technology Service Provider Should Take to Determine Their Marketing Budget
Step 1: Benchmark Your Overall Investment
Rather than looking for specific marketing spend, Gartner argues that teams should question if their marketing spend is suitable to support the company’s go-to-market strategy, sales targets, and business objectives. In other words, technology service provider teams should reverse-engineer their approach to marketing budgeting by looking towards their end goal to determine how much they’ll spend.
Gartner further explains that this approach supports the correlation that exists between the level of marketing investment and pipeline conversion rates. That is, the higher the investment, the higher the conversions (and ultimately revenue). Following this approach, marketing investments should be set as a percentage of overall revenue. As a business scales, so to will its marketing investment in order to support increasingly more ambitious revenue targets.
But exactly what should that percentage of revenue be?
Gartner cites percentage levels as swinging anywhere from 1% to over 15% (here at TPM, we see that figure vary from 4% to around 15% with our clients). The reason for the variation, Gartner explains, depends on ranging business objectives. Higher percentages, for example, are often seen during periods of accelerated technology innovation or market disruption targets.
For a baseline figure, Gartner recommends technology service provider teams aim for a marketing investment percentage of around 8% of revenue. For example, if your business currently earns $1M in revenue your marketing investment should then be set at approximately $80,000.
That said, Gartner also recommends teams should first review their unique objectives, competitive pressure, and growth plans and adjust that percentage to reflect those variables.
Step 2: Spread Marketing Spend Across Talent, Technology, and Programs
With the overall marketing budget in place, you now need to determine how that investment will be allocated across all areas of your company requiring marketing. According to Gartner, those allocations should be divided across three areas:
- Talent (people and contractors)
- Technology (tech stack)
- Marketing programs (digital marketing, content creation, events, etc.)
In its survey, Gartner found that the investment distribution across these three areas was fairly balanced with 34% going to staff, 30% to technology, and the remaining 36% to marketing programs.
As with the overall budget setting, technology service provider teams should allocate funds while taking into consideration its unique business objectives. For example, when breaking into new markets, a provider may need to inject more funding into its marketing programming in order to increase its volume of content output. Similarly, increased technology funding may be needed at times when a provider needs to acquire more sophisticated customer analytics tools.
Step 3: Increase Marketing Spend to Increase Conversions
As mentioned above, the more a business spends on its marketing, the higher its conversions will be. In fact, when examining technology service provider teams that spend 10% of revenue, Gartner found an increase of over 4% in pipeline generation as compared to TSPs that spend 5% of revenue.
Here at TPM, we see this correlation in action all the time — with increased marketing spend almost always leading to a greater number of leads for our clients.
Take the following comparison of several social media advertising campaigns we ran for a client. As the ‘Spent’ and ‘Key Results’ columns show, those campaigns with increased marketing spend always produced a higher total number of leads.
Of course, many teams are working with finite budgets (particularly in the Covid-19 era) that don’t allow for big spending on all activities. As such, we recommend teams be selective in their approach and focus the dollars on the marketing initiatives that are likely to yield the highest traction.
Need more help getting your marketing budget in order? Or ideas to put your marketing ideas into action? We’re here to help. Reach out to us today.