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How much should you spend on marketing?

Sam Crowe 01-May-2019 15:07:00
Marketing spend

Finding your sweet spot

A brand has very little chance of growing if people don't know about it. But knowing how much money to put into advertising (such as Google Adwords) and marketing your business isn't straightforward.

In the past the question of what to spend on marketing came out of a textbook: somewhere between 7-10% of your turnover for an established business. A business that's just starting out will need to spend more to establish the brand but over time it will still come back to the same 7-10%. The continual cycle of what your marketing spend from last year will determine what you spend this year also helps to fuel the argument that up to 10% is right.

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But things aren't straightforward anymore. A billboard isn't going to pull in the punters, and certainly not if your competitors will be investing in social media, SEO, email marketing, digital display, bots... the list goes on but a lot of it is digital.

And it goes some way to explain why in Gartner's CMO spend survey 2018-2019 companies that make more than 10% of sales online allocate 13% of their total budget to marketing. This is compared with companies without internet sales, which allocate 10.6% of their budgets to marketing.

13% may seem a lot but that figure's modest when you look at the likes of Salesforce which reportedly spends 49% of revenue into sales and marketing. How can you respond to that?

Of course, there is an argument to say that what your competitors are doing isn't necessarily a reason to spend madly.

It's only cause to react if they are winning market share as a result. There are also lots of other contributing factors to think about, like whether they have a better product, a cheaper price, a differentiated service model. If they are deal breakers for a potential customer then you will need to address them before you start any marketing and agreeing what you will ring fence as a marketing budget.

Working out a marketing budget

Today, the process you go through to work out the marketing budget needs to be as strategic as the marketing itself. And for that to happen marketing needs to be valued as an investment not a cost. The board isn't always ready for that conversation, so it's important to make the case about what marketing will deliver.

This comes down to appreciating the market dynamics in which you operate and using that to agree spend. In short it's about talking the board's language and helping them see how marketing can help answer some of the bigger questions. Will it offset aggressive competitive behaviour or allow you to steal a march on their ambivalence, does marketing need to help with customer acquisition or retention? Will it help you break into new markets?

When you pose these questions you start to identify what a customer is worth to you and therefore how much you are prepared to spend to not just acquire them but keep them. In these terms, marketing is then very quickly positioned as an investment which has a return - a way to nurture customers and ensure their loyalty and continued spend.

The value of marketing data to agree a marketing budget

But understanding that marketing is an investment doesn't necessarily help with working out what the marketing budget should be. You could have a huge shopping list of things you want to do but it poses a second question - what can you afford?

If you review your strategic company goals and identify the things that have to happen for the business to perform then you are a step closer to establishing which marketing activities need to happen, those that are not essential but would still contribute to the bottom line, and those that will have no impact at all.

This requires some insight and measurement to have taken place. (Not always possible for a firm that's just starting out, but a reason to ensure that you build in measurement when you begin any marketing activity).

It stands to reason then that Gartner's survey also says that in 2018, CMOs devoted more of their budgets to investment in marketing technologies than to skill, with martech spend rising to 29% of the average budget. Data is crucial for understanding the impact we have as marketers and the decisions we make.

But data is only useful if it gives us actual insight and that gets harder to obtain the more channels you have. It may take about six or seven interactions, possibly a lot more to convert someone to being a customer, and the channel they come through to buy might not be the one they have been exposed to the most.

The methods of last touch attribution seem outmoded in today's world.

So what do you do? You could go radical. Earlier this year The Drum reported that Photobox decided to turn all of its marketing off to see what happened, see what really made a difference to sales. It's an extremely brave thing to do but taking a channel by channel approach gave the marketing team absolute clarity on what and when to spend their budget.

If you made adjustments would you see sales improvements?

Where does that leave you? Well it's an experiment you could try but probably only worth doing if you have a complex mix of channels that have built up over time. It might be better to review the channels you have according to industry standards for performance. If your email campaigns are under-indexing then it could be a sign that the way you use the channel rather than the use of the channel is a waste of money.

If you used a different copywriter, produced more informative or cleaner landing pages would it make a difference to engagement and conversion? What if you tried to send the email a few more times rather than consider one unopened email a sign they aren't interested?

In a busy world, trying again works. In fact we know it does because we have helped companies that have come to us in a rut and shown with some strategic and tactical thinking you can turn performance of a channel around. A much better result than turning it off. You have to remind yourself that sometimes the strategy is right. It's the execution that is lacking and there is no harm in stepping back and trying something new.

Peer performance - should your marketing budget compete?

You could also look at what your peers are doing and how their audiences are responding. For instance, Forrester Research shows that the average firm is expected to allocate 42% of their marketing budget to online, and this rate is expected to grow to 45% by 2020, Gartner thinks this will be as much as 54% by 2024.

That also helps to explain the shift to invest in more marketing tech. But it also demonstrates an understanding of how people behave and when and where they consume marketing messages. According to Campaign Monitor, now some 50% of emails are opened on mobiles. That's a mighty big clue to follow.

And then there are the robots. A recent Barclays report ‘Adtech ascendancy: The next wave of digitalisation in marketing’, shows that chatbots will account for 80% of business communication in five years and voice search will account for almost half of search 2020. Technology is pervasive, how we respond as marketers will be pivotal to our success.

Other stats from Forrester Research show that social media takes up around 25% of the spend, paid search, email marketing, display and social media and online video advertising will take up about 46% by 2021. More clues...

Marketing budget and skill

A strategic approach to marketing also needs skill. For some businesses that's where the budget goes. Before you know it you've spent the money on getting the people who will deliver the plan, and are under pressure to buy the tech and execute the strategy with what is left. It's a win-lose situation

Given the statistics show martech is going to be a major focus, there will be the dilemma as to whether to have the skill and the tech in house or outsource it. There are pros and cons to both. However, if you need your budget to go far then an agency that knows its craft, knows the tech like the back of its hand, and can hit the ground running is likely to the be the answer to your prayers.

PR the unsung hero in strategic marketing budgets

One area we have not touched on is the value of PR and where that fits in. It's often the poor cousin and the budget for it gets allocated at the end of the discussion not at the beginning. However, if budgets are tight, PR can be the most powerful tool in the marketing box for growing awareness and credibility, especially when it is focused and targeted.

It's especially powerful when the marketing message and the PR message are the same. Integration works wonders. As we said at the start of this post, there are numerous touchpoints in the decision making process. Anyone in the market to buy will be doing their research and reading about your product from an impartial journalist and matching it to what you have been telling them in marketing. When everything lines up, PR is far better than any marketing in helping to convert someone who is on the fence to customer.

Strategic marketing budgets are the way ahead

Summing up, setting marketing budgets isn't about following the textbook 10%. It's all about being strategic. Understanding the company goals, the wider trading environment and the skills you have available to you is critical. When you have this clarity you can agree a budget to match.

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