put objectives ahead of formulas
I have never met a marketing manager or business proprietor who did not want to reduce marketing costs or increase the return on the dollars spent. With that in mind, I will start the year with my first 10 THOUGHTS on how to maximise return on investment in marketing expenditure. This is the first.
In some circles, 10% is considered the ‘magic number’ (Vital) in terms of marketing budgets. This reflects the school of thought that considers businesses should spend 10% of revenue on marketing.
I am not going to dispute the percentage as much as the notion of having a percentage and the suggestion that marketing budgets should be determined on the basis of revenue. Both propositions are non-sense.
There is no magic marketing budget formula. Further, this 10% is often cited in relation to promotion, not marketing, which involves much more than promotion.
Marketing budgets are better set on the basis of objectives and circumstance. A growth objective almost certainly requires a higher budget than maintenance – and the greater the growth being sought, the higher the budget may be. A competitive environment often requires a higher budget than a non-competitive market. A well-differentiated product can cost less to market than a poorly differentiated product, and so on!
Your budget should also depend on the potential impact of marketing on sales of your product.
A recent US study found that marketing is responsible for driving growth in some 38.4% of businesses and that those businesses spend an average of 14.5% on marketing. Businesses who could establish a link between marketing and sales were spending an average of 10.8% on marketing.
Again, in this example, the term ‘marketing’ refers to promotion only. I would argue that marketing in the broadest sense of the word drives the performance of all business.
Do not use formulas to determine marketing budgets, and do not look at marketing budgets in terms of revenue.
Set marketing budgets on the basis of what you want to achieve and the environment in which you do business.
Finally, remember that promotion is just a small part of marketing and that investing in the product and other aspects of marketing can significantly reduce the investment in promotion.
SOURCES OF CORE DATA
Vital, Smart Insights, HubSpot, Productive Strategies Inc, Modern Marketing Partners and Neto
MORE THOUGHTS – www.djohncarlsonesq.com