How do I determine my marketing budget?
Someone once said that 50% of their spend on marketing worked but that they were unsure which 50% it was. Perhaps they can be forgiven for doubting the value of the company’s marketing budget. In many organisations, marketing has progressed with marketing budgets now being seen as an important part of their business planning and strategy formation.
As a marketing director, I am often asked by clients ‘how much should I be spending on marketing?’ The answer depends on many factors. The first step is to cast aside a generic budgetary process and the more traditional approach of setting a budget based on what your previous year’s activities were. If you do what you’ve always done before, your results are unlikely to differ greatly.
Another common approach is to set your marketing budget as a percentage of turnover. The flaw in this is it too is often based on historical results and assumes that your position in the market place remains unchanged. This method provides no scope to address issues such as a growth strategy or the incorporation of new marketing initiatives. This method also restricts the flow of creative marketing influences, aimed at achieving business profitability and growth.
Through sector intelligence and access to competitor’s financial information, a number of businesses opt for a ‘comparable’ marketing spend e.g. if a competitor is perceived to be spending ‘x’ on marketing, the other firm will match this. This strategy however, does not necessarily mean the two organisations will be competitively priced. The main weakness in adopting an industry or competitor approach is primarily that you run your business second guessing your competitors. Invariably, why you think you know your competitors, few are really privy to their inner most secrets, therefore the pitfalls are probably more self evident than you first thought. A well thought out marketing plan, based on your own objectives can help you to gain a competitive advantage and differentiate you from your competitors.
The easiest and most effective budget setting method is that of setting your objectives and looking at how you are going to achieve them. This can include both growth and development aspirations. Careful thought needs to be given to how you are to achieve these objectives and what activities you will need to undertake to attain them. Decisions need to be based on a clear and comprehensive understanding of not only your marketing place but also various marketing techniques. In preparing the budget, you may well find you undertake a process of obtaining quotes from various suppliers, a process which will aid in obtaining best value for money.
In contrast to methods highlighted at the beginning of this article, this process can help you achieve a cohesive plan at the beginning of your financial year, by way of ascertaining an effective return on your spend, you may even find you end up spending less on certain activities you have previously undertaken. Understandably the objective and task method has to take into account the overall financial limitation of any organisation. The thought process of preparing the budget though can stimulate ideas for adding value to the spend and opportunities for financial uplifts.
You may also find that your marketing is as a result more about what you undertake in terms of the organisations time as opposed to pure cash spend. It certainly should help you to be more effective in measuring returns on expenditure.
James Pinchbeck is Marketing Director with Streets Chartered Accountants.