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Five Questions Everyone Creating a Marketing Budget Needs to Answer
The last few months of the year mean a lot for marketers—the final charge towards revenue targets, the chance to plan around the seasonal flurry of economic activity that holidays bring, and, of course, budgets.
Budgeting for any function can be stressful, because it’s the time when you have to make key decisions about the next year; will the department grow its size and technical infrastructure, or will it have to control costs more aggressively? Will you maintain your current structure, or will reorganization require more resources?
But unlike internal-facing functions like Legal or Finance, there’s an extra wrench when it comes to marketing budget: the work it produces is supposed to create consumer demand. Theoretically, the more you spend on marketing efforts, the more customers you could have. When it comes to budgets, then, you’re thinking about how to optimize customer acquisition with finite resources.
And there’s another wrench: converting people into potential customers who recognize your brand takes time. Investing in long-term mental awareness doesn’t yield immediate results, and it can be difficult to know exactly how aggressively you need to do it. The way you allocate your resources, therefore, must also contribute to growth even beyond the year you’re setting a budget for.
As you go through these sometimes tense, sometimes complex discussions, it’s important to keep the big picture in mind lest it gets lost in the numbers, projections, and possibilities your team delves into.
Below are five questions to keep you focused on what’s important. And we offer more details in our new guide: The Handbook for Marketing Budgets: Questions for the Modern CMO.
1. What Are the Specific, Measurable Goals Your Department Must Accomplish?
Your marketing budget is a means to an end. Once your departmental goals are clear, you can start seeing how resources should be used.
The easiest way to do this is by describing your department’s current state with your most important quantitative KPIs, and then describing your ideal state in terms of how those KPIs should improve.
Once you know these goals, you can start establishing any strategic assumptions you have about how key metrics grow — for example, your marketing operations data may show that more content marketing improves the sales pipeline by a certain percentage (and you know that you need new marketers to increase content production volume).
These assumptions will inform and rationalize the initiatives that will take you from your current state to your ideal state next year. Those initiatives—which include both investments in your team, internal reorganizations, and external-facing marketing campaigns—will be the ones that merit resources.
2. How Do Those Goals Align with the Usual Budgeting Rules of Thumb?
Once you know your goals, you’ll need to figure the amount of money it takes to accomplish them. There are a couple commonly accepted, quick and dirty methods to estimate what a marketing budget should be.
The “ten percent” rule. A marketing budget is often hovering at around 10% of a firm’s revenue.
Last year’s budget, adjusted by growth in company revenue. This is a more traditional way for budgeting across functions and industries; if you made do with last year’s resources, you get about the same amount this year.
While these rules of thumb can be helpful, they may not be what you’re looking for if your goals include dramatic increases in metrics like revenue or brand awareness.
Big corporate and brand growth depends on being able to create mental availability: ensuring your brand and its marketing efforts are present enough that it comes to customers’ minds readily. Sometimes, that means drastic measures; for instance, Salesforce spent more than 50% of revenue on marketing and sales in 2014.
The takeaway: drastic goals mean drastic resources. The usual guidelines may make sense if you’re trying to maintain a status quo, but if you’re looking for a state of constant rapid growth, your budget needs to be able to accommodate the initiatives that will achieve it.
3. How Much of That Budget Will Go to Department Growth, and How Much Will Go to Brand Growth?
Once you’ve set goals and determined your total budget, the first big choice you’ll make is how much you’ll spend building your department as opposed to placing content in front of audiences. Brand growth is dependent on media buying (or working spend) and department growth is an investment in your production (non-working spend).
New hires, promotions, reorganizations, and new technology investments — all components of your non-working spend — necessarily mean you will have less money to spend on external-facing campaigns. But a larger, more informed team that’s better equipped will perform better, so there’s a delicate balance to achieve.
Your assumptions should outline key facts like how many people you need to produce your ideal levels of content and advertising. For instance: a 50% improvement in sales pipeline for a B2B company could mean tripling the volume of whitepapers produced; how many more team members or independent contractors will it take to reach that level of production?
Department growth can refer to IT, too. New technology doesn’t just aid in ramping up production; it helps you refine your assumptions model by giving you an understanding of what types of content and campaigns drive customer recognition of your brand, interest, and engagement. Technology can also help you understand just how many resources it takes to produce content and whether it’s on-brand or not.
Marketing operations staff should be able to provide you with an audit of your marketing technology stack — how well-integrated it is, what gaps you currently have, and how urgently they need to be filled.
4. How Will Non-Working Spend Consume Your Advertising Budgets?
After determining how much of your budget will go to your team, what’s left over will work toward external advertising efforts.
We often think of advertising budgets as being consumed in monolithic blocks—this campaign will take up X% of my advertising budget, this one will take up Y%. But the reality is you should think of your spend on campaigns and content as being spent two ways:
- Working Spend: The amount of money you spend on distribution, or what it costs to place a piece of content in front of your audience.
- Non-working spend: The amount of money you spend producing the content, and preparing it for distribution. Part of this is accounted for when you’re determining how much you’ll spend on your team (see the above question), but other expenses accrue outside that context—photoshoots, image procurement, and agency fees can all add up.
Every dollar you spend on non-working spend keeps you from distributing impressions and content to more people.
Ask the following questions to get a better understanding of how your campaigns could become more cost-effective — and thus, how your money could be better spent.
- How much of our advertising costs is soaked up in non-working costs? How does this change across traditional channels like TV and digital channels like search, programmatic, and display?
- How has non-working spend grown in the past year? How can you expect it to grow in the next year?
- Is your team effective at controlling levels of non-working spend? What processes and technology do you have in place to monitor, track, and curb it?
5. How Will Your External Marketing Campaigns Contribute to Long-Term Growth?
Finally, even though you’re setting the budget for just one year, you need to think about how it’ll produce results in the years to come.
A focus on rapid sales growth shouldn’t come at the expense of long-term brand building. While some of the quantitative KPIs you work toward should contribute toward driving sales, they should also help you build a long-lasting, mentally salient brand.
One way to think of customer-facing marketing and advertising campaigns is to sort them into two buckets: “brand-building” and “sales activation.” It’s exactly what it sounds like — those that are brand-building are aimed at increasing customer trust and affinity, and “sales activation” campaigns are promotional ones that drive short-term sales. A 30 second TV ad with McDonald’s “I’m Lovin’ It” tagline is brand building; a Facebook Ad informing audiences about a seasonal savings deal is sales activation.
That’s probably going to take more than one year, as Martin Weigel, the head of planning at Wieden+Kennedy Amsterdam, explained at this year’s Transition 2015 conference.
The Institute of Practitioners in Advertising advises a 60-40 split in advertising budgets, with a bit more dedicated to brand-building campaigns; its databank found that efficiency and effectiveness of advertising peaks at that division.
It isn’t unusual for budget discussions to get messy. But keeping these questions in mind can keep you focused on the big picture— your department-level goals and your brand’s future—and just what exactly it will take to make it reality.
Take a deeper look with The Handbook for Marketing Budgets: Questions for the Modern CMO.