One of the most common questions we get is “how much do I invest in my marketing campaigns?” and although it is probably one of the most important questions, it is also one of the most difficult to answer, specially after just one meeting. Most companies implement a Marketing Program with a blend of marketing plans or campaigns that fit together; however, these plans or campaigns compete for the same limited marketing budget.
Budget as a Percentage of Sales
It is common to find budgets based on percentages of historic sales data or sales forecast (e.g. qualitative, time series and causal models). Marketing managers that prefer consistency and easy measurement usually set percentages from 3% to 7% of the sales; however, this methodology may create a marketing program based on expenditures and will fluctuate with the sales volume. If sales grow, so the budget, but if the opposite happens, then the budget shrinks, which in most cases more aggressive market efforts should be employed, not reduced.
Task Based Budget
With a limited budget, it will not be possible to run all the promotions the marketing manager would like, so there is a need to set priorities based on tasks and timelines. Along with a proactive marketing agency, management can build a Marketing Program with a clear screening criteria. Bringing the experience of an external player helps management to see things differently and figure out a best way to see current situations. For example, is there a sales target that must be met at the end of the cycle? Is there a ROI before taxes on specific new products? Is there a need to spread the risk using new digital tools? Is there a branding problem? Is the current mix of product and/or services cannibalizing sales? Is there a current price war with competitors?
Once the marketing management has prioritize each job, then the marketing agency can help categorizing which promotion methods are more efficient and effective for the deliverance of the message. With that information, management can choose an efficient mix of marketing activities and set its budget accordingly. This is a budget based on specific tasks.
Some prospect clients ask: “should I keep the same buys?” the answer is: not necessarily. Once a task has been identified and the promotion was designed and implemented, the agency monitors the effectiveness and adjusts the buys accordingly. For example, once the audience identifies the brand, it may be time for a high profit margin product to be introduced and branding would not suffer. Another important aspect of a task based marketing is a timeline and fact based expectations. There are industries that have fast cycles like fashion and technology and some with longer cycles, like industrial machinery.
You know your business better than anyone, and partnering with a marketing agency will help you to identify tasks, set timelines and implement performance indices. By using the Socratic Method, the question of “how do I determine my marketing budget?” could be answered with another question: why do you need a marketing budget?