Building A Marketing Budget
“What kind of money should we be spending on marketing?”
We get this question a lot. Typically, it’s from the business owner. Sometimes, Marketing Directors and CMOs want a gut check based on how the efforts of others in their industry compare with their company’s allocated marketing resources. They’d be really lucky to have a tried-and-true marketing benchmark and a well-protected line item on the company budget. But let’s be honest…for small to medium-sized businesses, that doesn’t always exist.
The truth is, “What is an appropriate marketing budget?” can be a tough question to answer. Plenty of factors. Before we dive into our approach, here are some of the questions we may ask right after the “how much money” one comes our way.
How much you got? (Just kidding).
Is there foundational work to be done? Meaning… do you have marketing projects that need to happen this year that will not be recurring year-over-year? This includes stuff like logo design, strategic positioning and website creation.
Do you know your company’s gross revenue projections? We’ll explain later.
What are your goals and how would meeting them change the financial landscape of your business? Here, we try to understand the value that our strategy and work will bring to the business.
Do you have any marketing folks in-house?
What do you do for employee or client appreciation?
What happens if you do nothing?
No two businesses are the same. Sure, we can research what a Credit Union with 500 million in assets should be spending on marketing every year, but that doesn’t tell the entire story. What’s the market like? What do the competitors do? Are their product offerings competitive or lacking in some way? Are they the incumbent market leader or do they want to be?
So where do we start? Enter…
The Budget Calculator
The Budget Calculator is our state-of-the-art, proprietary and handy-dandy piece of technology that determines precisely what our clients should be spending. But actually, it’s just a Google Spreadsheet we made.
See, in order to get granular with your marketing approach, you have to start high-level. It’s like building a house. You probably know if you need to be in the 250–500k or 10 Million range based on your family finances. You can pick out the cabinets later.
So for the purposes of this exercise, we will assume that Client X (that sounds badass) has annual revenues around 10 Million bucks.
The first thing to determine is how aggressive or competitive you want to be with your marketing approach. We define it in three categories/attitudes that associate with a percentage of gross revenue. The percentage is calibrated based on industry averages for your specific vertical, so we’ve simply used placeholder percentages here.
Maintain (A% of Gross Revenue): A baseline. Basically, for companies that want to do the bare minimum to say they “do some marketing”. For having a pulse and keeping the lights on. It can be tough to work under “maintain” parameters because marketing doesn’t move the needle very much for the business. Or, it’s not valued by the decision-makers. Maybe the company “has done just fine without much marketing in the past”. Heard that a time or two.
Activate (B% of Gross Revenue): Lots of clients fall between this and the third level. Companies needing to “activate” understand that they need to invest in marketing tactics that will drive leads or convert sales. They need to compete. They need to launch new or updated initiatives and make sure their target audience knows about them before they go somewhere else. “We are launching a new service line this year.” That’s code for, “We need to activate”.
Accelerate (C% of Gross Revenue): We could have called this one “Dominate” but that’s a little aggressive. Companies that spend this percentage of gross revenue are marketing are typically in a highly competitive category and need to cut through the clutter. Sometimes bringing a new product or company to the market requires this level of investment. But most often, companies that are entering a new year with FOUNDATIONAL marketing needs like new branding will need to invest a larger percentage to accomplish their goals.
ACTIVATE
You’ve selected a marketing approach (probably somewhere between Activate and Accelerate) now, you need to bucket the spending into four high-level categories. They are:
PEOPLE
It’s critical to have the right “people” resources when it comes to your agency relationship. This portion of your budget is usually spent on salaries and overhead costs to bring someone (or a team of people) in-house to work with your agency. If the people budget doesn’t quite cover the cost for an internal team, that money can be allocated to your agency for Account Services or Strategy.
PAID MEDIA
You can’t drive your car if there’s no gas in the tank. Much of your marketing budget typically needs to be dedicated to placing the media necessary to drive the behavior you are looking for. This could be digital marketing placements, paid social media advertising and traditional advertising like print, outdoor and/or broadcast.
CREATIVE
These are your agency fees. It’s the money you spend on the time and talent it takes to build strategy, craft persuasive messaging, design eye-catching assets and develop the ideas that will resonate with your audience.
OTHER
We always carve out a percentage of the budget for the unexpected. Perhaps there is a game-changing concept or idea that needs more resources to pull off? Perhaps the client needs to invest in a software or piece of technology to help drive home their marketing strategy (CRMs, etc). Sometimes we pull from this budget for print or additional video and/or photography production.
NOW THROW ALL OF THAT OUT OF THE WINDOW
Sort of. There are certainly situations where your marketing investment will be a huge percentage of your revenue (or lack thereof). For example, if you are a start-up, you will need to create the brand, messaging, sales deck and investor pieces that will help you raise capital, get beta-users and/or garner some industry attention. The same is true for small businesses like restaurants and professional services. Foundational work is an investment vs an expense. Either way…
Having an understanding (from the get-go) of what’s appropriate for you is valuable to your company and your agency partner. It’s not about taking as much as you’re willing to give up. It’s about spending your marketing dollars in ways that will bring the most value to your company. Great partners understand this principle.
Remember… there’s no magic bullet when it comes to marketing. It’s about choosing an agency whose approach aligns with your style and your goals. Someone you like. Hopefully someone transparent enough to post their secret sauce on a blog post about developing your marketing budget. And if you’re still unsure, ask Katie King.
