The annual budget deliberations of a small business who has set aggressive market share goals.
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. Didn't we already pay an SEO agency to do all of our website SEO work last year? Shouldn't that be enough forever. Seems like marketing is always wanting more money for their marketing budgets! Do they really support that many marketing activities?
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 on digital marketing so we get the most ‘bang for the buck from lead generation activities’ and we see the light from all these marketing costs. After all, your sales team is demanding ever more leads to meet your hyper aggressive sales targets. I also think you should keep in mind the ever increasing cost of Google Ads. Never mind the rising production cost of paid advertising content to support our marketing campaigns.
Well, how do we decide how much to spend on marketing anyway? For that matter, how do we decide on how much to spend on online advertising or digital advertising?
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, subtract out CAPEX and operating expenses and then arbitrarily decide on a marketing budget.
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.
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:
Gets management to work toward spelling out the relationship between marketing spend and promotion results.
Most difficult approach as it requires detailed planning
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.
Thanks