By Elena Davidson, Client Services Director, Mi Liberty
As many government departments and related organizations start to feel the effects of this year’s budget, your CFO may be wandering around thoughtfully polishing their scalpel and thinking about where they can trim some budget fat. All too often, marketing or PR is the first area catch their eye; the old adage about spending money to make money is very easily forgotten when times are tough.
But contrary to what your CFO might think, marketing departments are more than just a cost centre. Just as in any business sales drive revenues, so marketing drives sales. Only a short-sighted company will throw away their lifeline to new business. Smart businesses will instead be asking themselves just how much marketing they need to do?
I’m afraid that there is no magic formula for how much – in monetary terms – marketing and PR is enough to get the job done. The cost of marketing to a business varies depending on its size and the industry it’s in; on top of that, a business that’s launching for the first time or announcing a new product may well look to spend more than one that’s already well established. The important thing is that as a marketer you map out a clear set of objectives and create a budget that’s going to get you there. This is probably one of the most important decisions a small to medium-sized business will make, and something which is much easier said than done.
There are a few rules of thumb that can get you started. An old and established one is that a business’ annual marketing budget should be 1% of the value of the business or 10% of its revenues, whichever is lower (or higher, depending on whether you are the marketing manager rather than the CFO). That’s a bit of a blunt instrument, but it works pretty well for many people. In the present climate, companies are spending an average of 6% of their projected sales revenues on marketing.
Ok, so you have a ballpark figure for what you can justify. But what does your marketing budget need to achieve? That’s always the million dollar question. This is when we, as marketing types, need to sit down with the senior management team and ask some questions hard of the business before going any further. Firstly, we need to ask the essential question “what does our sales effort need to accomplish?” We then need to think through whether we need to maintain our position, or do something new. We need to look at what our competition is doing and finally what the business outlook is like.
If the answer is “do something new” then plan on spending more than you would maintaining a status-quo. I’m not talking about an Intel-Inside, $300 million in one year campaign, but certainly it’s not unusual to edge the marketing budget up to 20% of sales to have a really good go at cracking a new market. It’s important that these goals are clear, as marketing dollars need be allocated according to the return needed or, at least, what is required to achieve the desired outcome. It may seem boring but it’s in planning for and then measuring the success of these goals where many companies drop the ball.
Here at Mi liberty we have a full service PR and marketing services business that’s built up years of experience working with companies like Qualcomm, Vodafone, Napster and Navteq on their B2B (Business to Business) and consumer marketing campaigns. My business partner, Stephen Sharp and I feel very strongly that when it comes to marketing budgets many companies do not achieve the right balance between ideas and execution.
Many companies forget one main thing - to plan ahead and give themselves time and budget to test their marketing campaign before letting it loose. In the big world of multi-million consumer campaigns, no-one would consider spending money without building in proper testing, measurement and evaluation of the campaign before launching it.
For most companies focused on B2B customers the budgets may be smaller, but even £10K, £20K or £50K campaigns need to spend their money wisely. Clients often say they don’t have time to test their ideas – maybe that’s true – but usually that’s because they didn’t plan enough time. Sometimes it is also because marketing is not brought into the conversation earlier enough in the product or service's life cycle, or that people think that a B2B campaign doesn’t carry the same risks as a consumer one. Either way, it’s a gamble if it works at all.
So in many ways, the question ‘how much marketing is enough?’ is not enough in itself. Rather we should really be thinking about ‘how we can tell how much marketing is enough?’ Revenue may be the goal, but there are different roads you can take to get there – the trick is to pick the smartest route you can and achieve the right balance whilst getting there.
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