Countless small- to medium-size firms have no marketing or PR budget, and as a result, miss out on a key source of potential revenue generation and business growth. For firms that do have a marketing budget, the process of determining how to allocate resources is often stressful and frequently emerges from the “hey, I have a good idea” approach.
In addition, many companies fail to take the basic steps necessary before beginning the marketing communications process. While gut-instinct marketing tactics derived without solid strategic planning can be situationally successful, they rarely prove cost-effective in the long run. So, before executing, make sure to develop marketing initiatives based on a clear, strategic direction. Read on to find out how much to spend.
Where Are You Going?
Before you attempt to tackle the budgeting issue you should be able to answer yes to the following questions.
- We have researched and understand our target audience.
- We have crafted a message that matters to our target audience.
- We have developed a solid corporate/brand identity.
- We have integrated our corporate/brand identity into every aspect of our business (letterhead, business cards, brochures, signage, web sites, presentations and other materials).
- Every time a customer, prospect, vendor, employee or other key stakeholder encounters your marketing materials they should see your brand with a consistent look, feel and message.
Once the strategic work is complete, it’s time to communicate the marketing message you’ve worked so hard to create. However, before putting your plan in place, all parties must align to the marketing budget. Determining just what that figure is may take some doing. There are two primary methods for setting a marketing budget—one is based on current revenue and the other is tactically derived. Companies are successful using both methods if their efforts stem from a sound strategic base.
The Revenue Driven Approach to Budgeting
The revenue-driven approach is typically the starting point for left brained marketers and varies depending on the industry and type of business you’re in.
Business-to-consumer industries, such as retail operations, typically require a proportionately larger marketing investment than a business-to-business or professional service firm. Depending upon previous sales and the current growth goals of the company (aggressive versus conservative), the percentage of revenue can vary significantly. However, an average marketing budget tends to run between ten and 15 percent of a company’s projected revenue.
Let’s assume revenues for the ABC Company were roughly $8 million in 2017. It should plan to allocate between $800,000 and $1.2 million in marketing expenditures for 2018. More conservative companies might consider making a minimal marketing investment of no less than 2 percent, or $160,000 (based upon the previous scenario), per year. Keep in mind, these figures do not include the salary and benefits for a marketing director, public relations director or additional marketing communications support staff to implement your plan. Organizations must also consider their current position in the market, where they want to be and how they are positioned in relationship to their competitors.
The Tactically-Derived Approach to Budgeting
Starting with a tactically-derived approach appeals to more creative individuals because it begins by identifying specific elements they intuitively see as the best options for achieving their goals and objectives. The inherent challenge with this approach is that many organizations won’t have the financial resources necessary to fund everything on the wish list.
Marketing teams using this approach will find themselves thoroughly thinking through all available options—which leaves them with many strong programs, yet forces them to prioritize, scale back and modify initiatives based upon their relevance, previous successes and other influential data. A marketing budget based upon tactical costs associated with your goals and objectives looks something like this:
- Identify business goals and objectives.
- Develop your marketing goals and objectives.
- Outline your strategy.
- Develop your tactical plan.
- Estimate the cost for developing and implementing each of the tactics. (e.g. 1 trade show = $X, 6 PR pieces per month = $Y, 1 HTML email per month = $Z)
- Calculate the total cost of all the tactics.
- Present your total marketing budget to senior management. If the funds are not available to cover the total cost, specific tactics must be cut and business objectives affected accordingly.
- Execute the individual tactics.
- Measure the ROI for each tactic.
- Adjust tactics to yield the greatest return.
If your organization has traditionally operated under the “hey, I have a good idea” approach to marketing, you’re not alone. If you have a creative staff they are probably coming up with some great ideas. Unfortunately, even the best ideas lose steam after a few months without the financial support or strategic foundation to maintain them over a long enough period of time to produce the kind of changes in revenue you’re looking for.
To maximize your marketing dollars, you must work from a strategic plan, take sight of your competitor’s position and spending and create a budget process that fits within your company’s culture. Keep in mind that the key to success in marketing is the same as everything else: Know your goals, measure the results of your efforts and make adjustments along the way. Marketing is a process not a project and it’s returns are cumulative.
If you would like help with your next marketing project, we’d love to help. Call us today at 513-378-0231.