The Scene: The annual budget deliberations.
You spend how much on marketing! Are you kidding. Don’t you read the news? The world is a mess. We have to cut cost.
Chief Marketing Officer (CMO).
It may seem like a lot, but remember, marketing spend is a cause of sales, not an effect. Maybe we should review the approaches we could take on deciding how much to spend so we get the most ‘bang for the buck’ and we see the light.
Well, how do we decide how much to spend on marketing anyway?
Well, a quick review of the methods available is probably in order. I'll try to keep it short and simple.
Many companies use this method. They take revenues, substract out CAPEX and operating expenses and then arbitrarily decide on a marketing budget.
- This method can completely ignore the effect of promotions on sales.
- It also makes it virtually impossible to create an annual marketing plan.
Many companies base their marketing spend based on a percentage of current and forecasted sales. It is simple to use, especially in that the budget is easily derived.
- The budget may be simple to arrive at, but the devil is in the details and high-level budget numbers may completely miss opportunities to boost sales through opportunistic promotions.
- Frequently confuses cause and effect
- Because of yearly budget variability, as it is based on a percentage of sales, very difficult to make long term plans.
- No real way to choose a specific percentage of sales.
Many companies simply match their competitors spend. They get the spend numbers by intelligent guessing and from trade publications.
Theoretically, competitor spend represents the wisdom of the crowd, and should represent a valid number. However, experience shows there is no basis to believe the competition has a better idea. It is also easily shown that many of the sources of competitor marketing spend numbers are highly manipulated.
This method does not prevent promotional wars either.
This method, though the most difficult, is the most logical method. It involves:
- Deciding what you want to accomplish with your marketing.
- Deciding what marketing tasks you believe are necessary to achieve these tasks.
- Performing a detailed cost estimation of these tasks using the best available calculators.
Gets management to work toward spelling out the relationship between marketing spend and promotion results.
Most difficult approach as it requires detailed planning
- Each of these methods have advantages and disadvantages.
- Not all methods are applicable to all business types or sizes
- You will need to have not only indepth measurement capabilities of your marketing efforts, you will need to be able to tie them to back to revenues.
- Regardless of which method you currently use to establish your marketing budget, the marketing landscape means you will constantly have to shift your spend to achieve maximum effectiveness.
- We recommend you take a project based approach to marketing planning and market spend budgeting.
- This means starting with high-level survey of what you have done in the past, and currently planning to do in the future.
- Decide on the marketing channels, Outbound versus Inbound
- Create a Portfolio of Marketing Projects which you can assign planned cost to.
- Establish Goals for each project.
- Use these Marketing Project Plans to develop a resource plan, including people, processes and technology requirements.
- Establish a marketing steering committee which meets monthly to review and adjust planned marketing spend based on real-time marketing metrics.
- Develop a comprehensive Inbound marketing strategy that covers:
- Social Media
- Web Presence
- E-Mail Drip Marketing
- Content Marketing
- Creative Content Creation
- Channel Marketing.
Most likely, your approach to marketing spend will involve variations to all these approaches. Our approach is to base it on analytics and if you happen to have a datawarehouse, we can show you some unique approaches to the process. In the meantime, maybe you might want to take a look at our 5 Step Guide to Marketing Measurement, which may enable to get to a better marketing solution.