Percentage of Sales Allocated to Marketing Research
July 31, 2008
An ANA member asked Research Committee members for their perspective on market research budgets. Specifically, he wanted to understand what percent of annual sales members' companies allocate to their marketing research budgets.
Nine members of the ANA's Research Committee responded to the benchmark. Their complete responses can be found below.
In addition to benchmarking members, the Advertising Research Foundation was queried for their perspective. They responded:
"Larry Gold, the owner of [industry trade publication] Research Alert and longtime marketing research industry guru, told us: "No firm figure exists for the amount or percent of dollars allocated to research [from] the marketing budget. However, he states that there is conventional wisdom that generally 5% of the marketing budget or ½% of sales go to market research.
Member Response #1
The general rule I have been using, even when deciding the worth of a particular research project is that the research costs should be about 1%-2% of sales (or potential sales impact). If a company's annual sales are $100MM then the research budget should be approximately $1MM - $2MM. However, the member must also take into account that although a brand in a small category and a brand in a large category may have the same issues, it will cost more (lower incidence) to conduct research in a smaller category.
Member Response #2
A rule of thumb is that an MRD budget is typically around 1.0% and 1.5% of net sales.
Member Response #3
Unfortunately, we utilize the "tin cup" approach to research spending. I recently read a "best practice" study from Forrester that says this is actually a common practice. That said, based on my estimates of what we ended up spending after we passed the cup, it tends to be about .06%. It goes without saying that in a consumer products company, this number would be far higher, but in the B2B service sector we can get learning from our clients directly that helps with product development type of research.
Member Response #4
"All in," including staff, supplies, audits, syndicated reports, all business oriented consultants and all primary research studies including any product work done outside the company's walls, you would be talking 1%-2% of net revenue.
Member Response #5
About 1% for us.
Member Response #6
There is no formula or correlation between sales and research. I am guessing your inquiry comes from someone who is accustomed to allocating advertising as a percent of sales.
Best practices for research should allow budgets to be tied to responding to strategic objectives. Ideally, research would meet with its internal clients at the beginning of the planning year to anticipate work that needs to be done and how the budget will be impacted. Depending on whether research holds the budget or it is maintained by its internal clients, planning can stem from that point.
And, there are always unplanned situations that arise such as competitive "incursions" that can make ad hoc research something that should never come as a surprise.
Member Response #7
Knowing aware that 10% is an industry average, at [my company], we are only at 0.5% of total gross sales for marketing research. Hope this helps.
Member Response #8
With both salaries and projects, we spend about 0.05% of sales, i.e., much, much less than 1% of sales.
Member Response #9
The company is very apprehensive to do this kind of thing. If you did some sort of blind study, I might be able to ask Marketing Research to participate, but I couldn't send something like this out.
"Percentage of Sales Allocated to Marketing Research." ANA Research Committee, July, 2007.