The End of Averages – How to Set an Effective Marketing Budget

The essence of marketing strategy also aligns with the recognition of individual differences.

Segmentation, a fundamental concept in marketing, acknowledges that products or services are not designed for the average consumer. Notable brands like Red Bull and Jägermeister thrive on the idea that their product may not appeal to everyone, embracing polarization as a key element of their success.

However, a paradox arises when examining marketing budgets, as the industry often relies on average figures provided by reputable surveys. Two prominent CMO surveys, The CMO Survey from Duke University (conducted biannually) and Gartner’s annual CMO Spend and Strategy Survey, offer insights into marketing budgets. The CMO Survey suggests that, on average, 2023 marketing budgets in the U.S. represent 11% of revenues, while Gartner reports that budgets across North America and parts of Europe account for 9.1% of total company revenues in 2023.

Blindly accepting these averages is a bad idea. Ask me how I know.

When budgets fall below the average, CMOs and business owners may advocate for increased spending, while higher-than-average budgets may trigger the CFO to tighten financial constraints. Unfortunately, these knee-jerk reactions can often harm outcomes. As a leader in your business, you need a more nuanced and individualized approach to budgetary decision-making in the dynamic realm of marketing.

If you’ve been hanging around me for long, you’ve likely heard or read the example of LendingTree, which spent 67% of revenue on marketing during a brief period when the company was “upside down” with too many lenders willing to write notes and not enough customers willing to borrow. Obviously, the firm would be unwise to embrace this budget for too long, but they were absolutley correct to juice the budget for a short period (e.g., 90 days or less) so that they could achieve their stated objective.

I’ve long taught (and to my knowledge I’m the first to share these data) most growing firms in dentistry and orthodontics invest 6-8% of revenue in marketing and advertising. The average practice in our space spends almost nothing and this is one of many examples where following the herd is ill-advised. If you think you’re not spending at least 3-4% in marketing and advertising, I’d urge you to consider all of the line items that are probably not being allocated correctly by a CPA used to dealing with dental and orthodontic practices which do not seriously market or advertise. Your treatment coordinator team (i.e., the sales department) and their incentives, referring dentist campaigns and community events, your time as a leader in directing the marketing efforts, digital and traditional advertising, SEO, and a long list of other items must be considered.

When you start looking at these expenses, the lesson here is that an average marketing budget can be highly misleading for planning purposes.

If you compare yourself to the wrong peer group or a mismatched market segment, you might over- or under-spend. For example, marketing and advertising might be extremely low for a Medicaid orthodontic clinic attached to a pediatric dental group in a state with reasonable reimbursement. If one attempts to replicate this model in a state or market with mismatched demographics and/or referral patterns, the math could quickly turn upside down if it turns out more marketing and advertising is required to fill clinics at a lower revenue per chair hour than the competitor with near-zero marketing and advertising expense.

Alternatively, if you enter an affluent market with a high dental IQ and attempt to unseat a market leader, you might burn through large piles of cash before discovering the referral dynamics and community goodwill with the top competitor required decades of investment.

With today’s competitive landscape and increased data transparency, there’s really no reason why any of us should be using generalized averages when it comes to marketing. I have a handful of marketing and practice metrics that you can use to benchmark your performance and set attractive goals for your organization, moving forward with a sound budget and tested decision-making process. I’ve reverse engineered it as the 7 mistakes you must avoid and you can pick up that free report below.