Marketing-Automation-MemeIt’s a good question posted and answered by Marketo’s Jon Miller almost a year ago.  In his words:

If you want a simpler rule of thumb, you can estimate that marketing automation will take up between 3-5% of your marketing programs budget.  On average, large technology companies report that marketing automation accounts for 3.1% of their programs budget, and 1.6% of staff allocations, according to IDC’s 2013 Marketing Planner. Meanwhile, MarketingSherpa’s 2012 Marketing Benchmark indicates that companies spend an average of 7% of their overall budgets on marketing automation. (Note: MarketingSherpa reports a larger percentage because it surveys smaller companies across more industries than IDC.)

We uncovered this post recently while helping a handful of clients develop longer-term budget projections for their marketing technology investments.  It touched off an interesting back-and-forth between Brian Hansford, our director of client services and marketing automation practice group head, and Robert Pease who runs product marketing for Salesfusion.

Brian’s initial response to Jon’s math:

The percentages seem too simplistic and too low to me. 

Let’s say I’m the marketing director at CompanyX and my annual marketing programs budget is $120,000 for 2014, or $10K a month.  Headcount, PR, T&E, etc. for the purposes of this math are separate.  From my programs budget I need a marketing automation solution that supports my database of 100K contacts, with a dedicated IP.  Marketo’s list pricing for a database with 100K contacts is $4K per month, or $48K per year.  On list pricing my annual MA license will be 40% of my “marketing programs” budget. 

This may seem like an extreme example, but not by much.  Eloqua is priced along the same lines.  And Hubspot is more expensive than people realize.    

To contrast the fictional CompanyX scenario, I know of one leading B2B brand that has a multi-million dollar demand gen programs budget and I’m sure they spend 10-25% annually on Eloqua/Salesforce and other marketing tech. 

Finally, the early stage of using marketing automation is going to be WAY more expensive when the integrations are set up, processes are designed, content, training, support, and on are all taken into account.  And that’s before a company really gets productive with marketing automation.

I’m not a CFO.  Single digit percentages seem like fantasy to me.  ESPECIALLY for mid-market companies. 

Robert’s response:

With my CMO hat on, something that is 40% of my program spend that doesn’t actually find new business is tough to reconcile.  I get the math but to me that puts this spend under constant scrutiny in terms of value delivered/realized – at least I would be constantly looking at it and seeking justification for the spend.  Maybe a churn driver?  Seeing lots of shopping around coming our way after annual contracts expire…and even more pronounced if on a month to month.

I think some of the blowback in the industry is based on big promises, big % of budgets, then the “silver bullet” trap that marketing automation alone doesn’t make leads fall from the heavens and sales instantly increase – contrary to the marketing story. 

The work is not done (barely started actually) when the software is provisioned as we know. 

Guessing this is even more pronounced in smaller companies with smaller budgets.

What’s your take?  Would marketing automation as a higher percentage of budget help companies take it more seriously?  Or slow its growth due to nervous CMOs?