Time for budgets

For many companies the end of 2014 will also be the end of the budget year and marketing managers will be thinking about the budget for 2015.

Hopefully there will be a formal budget and not just a sum of money allocated to marketing. And that budget should be detailed, typically on a spreadsheet to show how the investment is to be deployed in accordance with a marketing plan. I use the term investment because the whole point of a marketing plan and the accompanying budget to implement it, is to achieve a return on the investment just the same as if investing in new plant to improve efficiency for example.

A problem with budgets is the tendency to take last years' numbers and add a few percent for inflation. This lazy approach prevents new ideas being funded and perpetuates spend on things which may no longer be valid, so it pays to rethink the marketing strategy,  marketing plan and supporting budget.

A question I sometimes  get asked is how much should the marketing budget be? Some people would like this expressed as a percentage of sales, but this will vary from business to business and what needs to be achieved. One approach is to decide the marketing strategy and write the marketing plan, then figure out the cost of implementation - 'to cost the need.' The reality for most companies is driven by affordability and then prioritising the budget for most effect.
  

How is marketing time budgeted?

Although outsourced marketing costs might be budgeted and managed, how is in-house time accounted?

When the economy falters it is easy to take a red pen to the marketing budget and make some quick savings. It is more difficult to reduce staffing levels because of all the employment legislation. The marketing team may have to do more with less and in response set about driving down outsource costs. But the marketing budget is not just about the marketing communications costs - but in addition employment costs, facilities the marketing team occupy and of course travel and other expenses. When the complete cost is applied, staff hourly rates and overheads might well be higher than outsource costs. So why does this matter? Well one aspect highlighted in the 2012 Social Media Marketing Industry Report from SocialMediaExaminer.com is the "weekly time commitment for social media marketing."

The report found that, "A significant 59% of marketers are using social media for 6 hours or more and 33% for 11 or more hours weekly." It also seems "those with more years of social media experience spend more time each week conducting social media activities. For example 77% of people with 3 or more years of experience commit more than 6 hours weekly to social media marketing. And 24.5% of this crowd are spending 20 hours or more each week." As social media marketing begins to absorb significant chunks of marketing time it is perhaps appropriate to put a value to this activity so that the comparative  costs versus other marketing activities can be measured as well.

It is easy to think that doing marketing work in-house comes for free - it doesn't. Not only is there the actual cost in terms of time and fully allocated overheads, but also the missed opportunity costs. Presumably before the marketing team became so engrossed in social media they were doing something else. Perhaps that something else is no longer important, in which case it is time to review the complete marketing picture and it might be helpful to understand in-house costs just as well as outsourced costs.

Time for b-2-b companies to review the marketing budget

 Investment in marketing  should deliver valid returns just the same as for investment in other business assets. Accordingly there should be a Marketing Plan that is designed to help the company achieve its business objectives and an essential part of that plan is the Marketing Budget.

Recent blogs have asked some searching questions about the value of investment in the most commonly used marketing communications methods in a rapidly changing environment. We began with the marketing mix and suggested that it may be time to review the balance. Despite the dominance of digital marketing methods and user preference for information online, many companies continue to commit large proportions of their budgets to traditional media. Why? Because they keep updating last year’s budget.

As the initiative shifts from print to online media many b-2-b marketers remain stubbornly committed to traditional display advertising. Exhibitions seem more popular  with exhibitors than with visitors and do the total costs really get considered?. Meanwhile new media opportunities are emerging online which call for a share of a marketing budget that is already under pressure. These blogs have now been brought together in a PDF version that can be downloaded from the Technical Marketing web site.

Marketing in difficult economic times will pay dividends for those businesses that invest by gaining share at the expense of rivals who cut their budgets. But that investment should be carefully made - not just last year plus or minus x%.   

Creating the marketing budget

A simple spreadsheet can provide a useful tool for creating and controlling the marketing budget. 

The most important thing is to both have a budget and to monitor expenditure against plan throughout the year. The budget is the financial expression of the Marketing Plan which provides the strategic vision, rationale and implementation programme. The budget also helps impose a discipline and control for the marketing team and is usually approved by management as the authority to invest in the marketing programme.

Some may find it helpful to include detail work sheets that feed summated figures into a summary page. Comment boxes can also prove useful to add explanation to the individual figures without adding line items for each. Of course larger operations may have sophisticated software to record and measure all transaction but it remains important to remember marketing is not accounting, so the budget tool should be an aid not an end in itself.

There are 2 ways of creating the budget:- 1) to ‘cost the need’ or 2) to invest what can be afforded. Cost the need is unlikely to be affordable to the typical b-2-b company so it comes down to a percentage of sales budget. There are no hard and fast rules as to what this figure should be. However some companies apply the percentage to product lines so well established products enjoy larger budgets than new products which actually need more support to gain traction.

Establishing actual costs can come from suppliers or past experience to build up the budget required to support the marketing plan. And finally include a sum for contingencies - the unforseen costs or even commitments made on behalf of the company in a weak moment by the MD! 

Recent blogs have looked at some of the big ticket items in many typical b-2-b budgets and suggested it is time to re-think the marketing mix rather than simply revamp the previous year's budget. Take a look at the index for related articles.

Marketing to a budget or on a budget?

In these times of economic gloom sound marketing advice, based on research, is to maintain the marketing activity while the financial management tendency, based on prudence, is to cut marketing expenditure. 

Research by Harvard Business School has shown that it is essential to maintain marketing spending, even more so in a recession and to emphasise core values. “It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times. Uncertain customers need the reassurance of known brands.”

In the last blog I talked about the importance of a Marketing Plan and closely linked to the plan is the Marketing Budget. As with the marketing plan - a statement of intent, a manifesto and plan of action - time should be spent on carefully building the accompanying marketing budget. Companies without a budget seem to be more easily tempted to buy special advertising offers and buy into all kinds of special deals than companies who have planned ahead and purchased at more advantageous series rates for marketing services that are core to the plan. Not only are the bargains not always appropriate but it is amazing how quickly the costs mount up and without apparent benefit. 

I have frequently referred to the engineering philosophy behind technical marketing. Take the case of purchasing a new machine or piece of equipment. It is regarded as an investment that will be justified on the benefits it will bring - lower costs, improved productivity, better quality. We look at marketing as an investment, an investment that should deliver valid returns. Just because there is often a significant creative element does not devalue the investment benefit. Equally there should be benchmarks and goals set that are measurable.

Another more subtle way of cutting the marketing budget is to cut quality. Where marketing is not valued by a company, then purchasing marketing services cheaply can be tempting. The problem with this interpretation of budget is that the downgrade in quality that usually accompanies becomes apparent to customers. They start to perceive the company as a 'budget' brand and lower their expectation of both the quality and value of that company's product accordingly. Interestingly people buying marketing services at a budget price might think otherwise in their day to day lives. They would probably opt for experience rather than trainees or amateurs and recognise that experience may appear more expensive but is actually the safe option. The same people that wouldn't let a student do their hair or fix their teeth will happily let a relative or man they met in a pub have a bash at their web site, design a brochure or photograph products. Although professional marketing advice might come at a higher hourly rate it can prove a wise investment in doing things right and helping the company build credibility.

Marketing by numbers

One marketing guru states without reservation that unless you are using at least 8 different marketing techniques then your marketing strategy needs an overhaul. He likes numbers - elsewhere it is 3 golden rules. Perhaps there are more pieces of advice reduced to a simple numeric headline. Of course this in itself is a good marketing technique - suggesting that there is a formula for success by following a prescribed series of steps. And of course it makes good attention grabbing headlines too. Of course the marketing practitioner has a range of techniques that can be deployed but it is not to say that because they all exist they should all be used.  A physician does not use every drug available but prescribes medication to address the diagnosed problem. Just because a business can advertise it doesn't mean that this is also the best use of the marketing budget. It is convenient to use metrics such as, the marketing budget should be set as a percentage of sales turnover. But consider two client examples where this was applied to divisions of large multi national businesses. In the first example the division had a significant turnover but only a few customers because in that business sector there were just a handful of players. But they had an advertising budget and wanted to run a campaign to use the budget. But this would have been unproductive - they knew all their customers and prospects already. Other marketing techniques to develop and sustain customer loyalty offered better returns. The second example was a company  where budgets were aligned to product sales. Again a problem because well established products enjoyed significant funding whereas new products that could in time evolve to replace these cash cows were underfunded. So the lesson is to devise a budget that is driven by a marketing strategy that in turn is designed to meet business objectives.  Marketing by numbers can obscure that goal, but marketing analysis can shine a light onto the real issues and indicate where budget should be invested.