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IF YOU WANT TO GET AHEAD, GET A BUDGET…

How to make sure your marketing produces profitable results

Many businesses view ‘marketing’ as something akin to a greedy and insatiable black beast which gobbles up money faster than they can make it, with no return other than a demand for ‘more’. They’ve had their fingers burned in the past by ‘get rich quick’ marketing campaigns which cost them dear and produced little or no improvement to the bottom line. Understandably therefore, they’re wary when approached by someone who offers to help them develop their business through effective marketing.

Their justifiable fears about the open-ended costs of marketing are often shared by owners and managers of newer businesses who are contemplating seriously marketing their products or services for the first time. One of the most common questions they ask is “How much should we be spending on marketing?” as if there was a finite, percentage-of-turnover figure that would guarantee effective results.

However, although it is possible to come up with ‘industry norms’ for some types of business, just using that as a rule of thumb doesn’t guarantee effective results. To ensure that marketing spend is really going to reap returns, any business, whatever its track record, needs to be asking itself the following questions:

How much have you spent in the past?

If the company isn’t starting with a blank canvas, this should probably be the first question. The relevance of this is that it’s a key indicator to what the firm probably “feels” is the right amount, especially if the sum has remained relatively constant over a period of years.

All other issues aside, whoever is in charge of the marketing budget is likely to have a fairly difficult task persuading their colleagues to radically depart from that sum (either increase or decrease) without intense justification.

Was past expenditure planned?

This is probably the most crucial issue in effective budgeting. What it really means is “Was most of it spent in accordance with a marketing plan?” For many companies the answer is no, simply because they have no plan. For others a plan exists, but isn’t followed. Even those who have a plan and follow it, often don’t analyse their past year’s expenditure to see how much fell in line with the plan.

It goes without saying that before anyone embarks upon serious investment in marketing they must have a realistic, robust and detailed plan outlining the what, why, how, where and when of what they’re going to do (and who exactly is responsible).

What was last year’s budget spent on?

Human nature being what it is, it’s usually the case that if there’s a budget, it’ll be spent. It’s easy to get through money, especially with the increasing number of marketing opportunities available. But without planned expenditure, it’s difficult to truly justify why money was spent.

What do you include in “marketing”?

The whole issue of budgeting is clouded by the question of what exactly should be included in the marketing budget. Some firms include hospitality, others have a separate “pot” for this. Many disguise print items in the stationery budget. For others, the costs of website development and maintenance are charged to the IT budget head.

Frankly, it doesn’t matter, as long as someone monitors and assesses the true overall picture of what is being spent on marketing and ensures that every part relates to some aspect of the company’s marketing plan.

What do you want to achieve?

This is undoubtedly the thorniest issue in marketing planning and budgeting. Common responses are “grow the business” and “increase turnover and profits”, but assuming you take that as read, you need to focus on specific markets and marketing activities. For example, there’s a difference between profile raising activities such as PR and sponsorship, – where the fundamental purpose is to raise and maintain awareness of the company or brand as a whole; and product or service centred activity where the purpose is to directly promote what the company produces.

How much do you spend on existing customers?

Most businesses spend more on trying to attract new customers than they do marketing to existing customers. This is often because mass marketing tools, e.g. advertising and print, tend to be hugely expensive in comparison with other forms of communication. Yet research has shown that it costs between five and ten times as much to win new business as it does getting more business from existing customers.

In fact, it’s still at least twice as easy to win business from ex-customers than those who have never bought from you before! So depending on the nature of business, it may make more sense to devote the majority of the marketing spend to winning more business from existing customers, whilst finding more economic ways of maintaining and building profile with prospects. (e.g. PR is a very cost-effective medium compared to advertising, yet is used effectively by a minority of companies).

What period does your plan cover?

It’s worth looking further ahead than the current financial year when considering marketing expenditure. Ideally, a marketing plan should cover a three year timespan in outline at least. In budgeting terms, such forethought assists in predicting peaks and troughs of expenditure. For example, in developing a new product or service, it may be that the first year’s marketing will be largely devoted to research and test-marketing.

Following that, there may be a big launch in year two – new sales material, promotional events,etc – all hugely expensive. However, in year three expenditure should drop away significantly; regulating the costs of maintenance and steady expansion should be easier from here.

Have you recently reviewed your current supplier list?

Although you may be completely happy with the services of your printer, design agency or PR consultant, you ought to review the market every few years. Costs can creep up in an on-going relationship and besides, it’s easy for both sides to get stale - speaking to other suppliers may spark off ideas about fresh ways of doing things. Even if everything eventually continues as before, a review can be a good opportunity to examine what you’re doing and how much you’re investing where.

How do you measure the return on your investment?

Your marketing budget represents an investment in growing your business, and as such, the return on that investment must be measured and reviewed. This is sometimes easier said than done in businesses where response can’t be linked to direct sales. Even so, it’s surprising how many companies still don’t ask new customers “Where did you hear about us?”, or research whether or not their newsletter or website is effective in persuading customers to use a wider range of products or services.

Although there’s no one formula for measuring marketing results, certainly one standard question should always be asked regarding marketing expenditure: “How can we measure the success of this?”

Who controls the purse strings?

Experience shows that those with the most successful marketing results are those where one person is ultimately responsible for the marketing budget. In larger businesses, the overall sum may be broken down into smaller budgets under the control of individual managers but if so, the marketing plans to which those budgets relate must also be elements of a much larger, overall marketing plan to ensure consistency and cohesion.

Plans and budgets should never be so rigid that they prevent responding to an unforeseeable opportunity and a reasonable contingency sum should be set aside for this purpose.

Although there is no ‘right’ amount you should spend on marketing, it generally should be one of the biggest areas of on-going expenditure in any business. As such, someone needs to be responsible ultimately for how it’s spent and why, if only for the time-honoured Micawber principle “Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness…. Annual expenditure twenty pounds ought and six, result misery…”