It seems like a simple, straightforward question. The problem is, no matter how much research you do into the subject, the answer remains a mystery.
It seems like no matter how much you budget for marketing your product or your company, it’s never enough. And while it may be true there are always other intriguing options available to you that might coax out a few more dollars here or there – the fact is, whatever you decide to spend on marketing is enough.
It’s enough because YOU say it’s enough – not because you’ve covered every conceivable possibility that might exist (or might come to exist) when considering your marketing plan for the coming year.
This ambiguity is what lies under every tense conversation over budget between a client and agency (or freelancer). In order to do a good job, the provider (the agency, graphic designer, web designer, etc.) needs to know two things: what are the client’s expectations for performance and will there be enough time and money to meet those expectations.
Clients, on the other hand, a reluctant to tell their marketing service provider too much information for fear they may be taken advantage of and that the provider will take advantage of them. It’s a valid concern, born out time and time again by unscrupulous ad agencies, publicity agents, fly-by-night web programmers and media reps.
In Search Of Budgeting Guidelines
Even going online to find answers doesn’t bear much fruit. You’ll find articles in respectable business-oriented publications like Forbes and Entrepreneur Magazine. But the problem with those sources is they often rely on old “rules of thumb” that may (or, in more cases, may not) apply to your business and the situation in which you find it.
Steve Olenski, the author of the Forbes article, provides some analysis of marketing budgets as a percentage of gross revenues. Even though the article is now a few years old, the percentages cited (B2C marketers spent around 9% of gross revenue on marketing and B2B marketers spent around 7%) still hold up. Olenski further opines that new businesses need to spend a greater percentage (12-20% of gross revenues) than older, established ones (6-12% of gross revenue). Presumably, this is because age of business is related, in some way, to established brand awareness.
Laurel Mintz, the author of the Entrepreneur Magazine article, provides some handy “rules-of-thumb” for what typical marketing services should cost (i.e. “Inexpensive”, “Good” and “Great” versions of branding, websites, social media services, advertising, content and events). The problem with these budget suggestions are that what passes as a “Good” budget in one market might be impossibly low in another or unbelievably bloated in a third.
So, is there no way to set a marketing budget and feel good about it?
The Wrong Priorities
What’s wrong with the common advice or practices of most marketing folks when it comes to setting marketing budgets is they wind up making arbitrary decisions with no context and then suffer the consequences for the coming year. This can be frustrating for both the client and the service providers who are left to “guess the budget” when it comes to planning for the coming year. As a result, dollars are very often misallocated and bad decisions – with real, strategic consequences – are locked in for the year.
All this results because of misplaced priorities. The focus is on the number and not on the outcome. There are two reasons for this: first off, focusing on a number – either a legacy number (this year’s marketing budget needs to be no more than X% more than last year’s) or an arbitrary percentage of projected gross revenue sets a budget cap with no grounding in reality. Second, setting a firm budget without any context makes spending the budget the objective. The result is undisciplined marketing planning foregoing research and customer insight for “shopping” for advertising, PR and promotional services until the budget is max’d out.
Putting First Things First
So, what’s the most practical way to set a marketing budget?
Instead of setting a marketing budget, spend your time defining exactly what kind of change you want to see happen to your company or brand’s bottom line and visualize how that change will occur. What kinds of products and services will be most likely to generate the bottom line result you want to achieve?
If you can visualize what “success” looks like by the end of the plan year, you’ve taken a big step in the right direction. Because once you’ve identified your destination, you’re able to quantify the distance you have to travel to get there. That journey – and overcoming the obstacles that lie in your way – is what you need to fund with your marketing budget.
We advise clients to quantify the financial benefit of overcoming those obstacles and successfully completing that journey. What’s it mean to their bottom line. Believe it or not, that’s a relatively easy number to quantify. All that remains is deciding how much you’ll want to invest in the trip to get there.
And any amount you choose to help your company or your brand get there is the right number.
Just remember, it’s less likely a marketing dollar spent will generate a return of 100x than it is to generate a return of 10x. What this means is we typically combine a conversation about the size of the coming year’s marketing budget with details about “how” the client expects to generate revenue and net income.
Understanding that part of the budget calculation is every bit as important as nailing down the top-line annual spend.
But we’ll save that conversation for a blog post about planning.