Marketing budgets are always a bit of a chicken and egg scenario, right? So often we need to sell some more products or services, so we can invest in marketing, but investing in marketing will help us more easily sell more products and services!
There’s a lot of advice out there where people will tell you, depending on whether you are an old business or a new business, and whether you want to grow or you want to maintain, what percentage of your annual turnover you should spend on your marketing.
It feels so impersonal and not tailored. There’s no consideration of so many of the factors that impact a business’ marketing or the wider business goals; including the internal skills you have and time you can commit to marketing.
Instead of blindly trying to spend a predetermined percentage of turnover, and trying to figure out what tactics to spend it all on, you should be working from the other end and reverse engineering a budget from the tactics you think will best help you achieve your goals.
In this episode, we take a look at how you can easily do that and then have confidence that the budget will support the best tactics you’ve chosen to achieve your goals.
This resource for this episode is available to Patrons of the show and available at the Marketing Builder Patreon Page.
As part of the service, I have had this episode transcribed. Transcribing, proofing, and editing a podcast episode is A LOT of work. That’s why I use a service called REV who provide professional freelance transcriptionists who are vetted for quality. While they offer a 99% accuracy guarantee, I do not proof-read their work extensively. Instead, I simply copy and paste below and, as such, please note that this is not a verbatim transcript of the episode and I have trimmed things like the intro, close, and mid-show ad.
Marketing budgets are always a bit of a chicken and egg scenario, right? I mean, so often we need to sell some more products or services, so we can invest in marketing but investing in marketing will help us more easily sell more products and services!
It’s an especially heightened conundrum if you are a start-up or a small business as you are probably scratching for every dollar and advantage you can.
Or, maybe you do have access to a pot of money and its your job to figure out how to spend it the best possible way? I’ve worked in plenty of businesses where, as the head of marketing, I’m just handed a total budget for the year and told to make marketing work within the budget.
So, I’d diligently go about setting up, or adjusting last year’s spreadsheets and see how much stuff I could fit in until the money ran out. There’s a lot of advice out there where people will tell you, depending on whether you are and old business or a new business and whether you want to grow or you want to maintain, what percentage of your annual turnover you should spend on your marketing.
I don’t know about you, but it feels so impersonal and not tailored. There’s no consideration of so many of the factors that impact a business’ marketing or the wider business’ goals.
So, it got me to thinking; instead of blindly trying to spend a predetermined percentage of turnover, and trying to figure out what tactics to spend it all on, we should be working from the other end, almost reverse engineering a budget from the tactics we think will best help us achieve our goals.
In years gone past, marketing was always treated as a function or section of the business. Something that just needed to be done but it wasn’t really part of the business – marketers never really had a seat at the senior management table. This was especially true, and still is in some places, for those small and medium businesses that have had some success but then added and gotten semi-serious about their marketing as they grew.
So, marketing was never part of the broader discussion about what the business was trying to achieve and the best ways to go about achieving it. It’s evident in those instances where I was handed a total budget for the year but never, and I mean never, was I part of the discussions about what our sales targets were or what costs we were trying to manage. Not once did someone come to me and say “We want to achieve X, can you come up with a plan and let us know how much money you need , or other resources you need to make that happen’.
It always felt like I was being treated as an internal agency or consultant – as in, don’t give them too much freedom and input in case they ask for more money or resources! Or, sometimes it felt like I didn’t have input into the goals at the start because maybe I’d say “Hang on you want to grow by 10% but you aren’t giving me more marketing budget?”
Thankfully, most businesses have come to realise that involving marketing at the start of any planning is really beneficial and that if a marketer is involved then they can provide a lot of value about how to achieve things and whether the goals the business is setting can be helped or achieved by marketing.
As a side note, I’m always astounded when a business says something along the lines of “We’ve decided to start really focusing on the customer and put them first!” because I’m like, what the fuck have you been doing because if a marketer has had a strong hand in your planning, they would have been telling you about how the customer has sat at the centre of the marketing mix since time began!
Anyway … at least they are getting back to basics. We are supposed to be talking budgets, right?
OK, so those percentages I mentioned before, well, depending on who you listen to range anywhere from 6 to 20% of turnover.
They say that if you are a new company, start-up, you obviously need to get the word out there and build awareness and that takes more resources than an established business maintaining their position. So for new businesses, or start-ups, they advise spending 12-20% of your gross turnover. It sounds like a lot, and it is, because sometimes you are trying to market without any turnover, as in prior to launch, so you aren’t caught flat footed when you do eventually launch. So, if you are are making no revenue, should you be spending nothing on your marketing? I hope not.
I guess they’d argue that you should spend the percentage of what your initial target revenue is. OK, so lets say that is $250,00 per annum, you’d be expected to spend $15 to $30,000 on marketing. It’s still a big ask for a start-up yet to have launched.
For established companies, they say that you should be spending 6%-12% of your gross revenue on marketing. Let’s say you turnover $3 million per annum then you’d be expected to spend between $180 and $360,000. I’ve worked in a few businesses where we’ve turned over that amount of money and I would have given my left arm for access to that type of budget!
But, deep down, I don’t think I’d have needed it. As I said earlier; instead of blindly trying to spend a predetermined percentage of turnover, and trying to figure out what tactics to spend it all on, we should be working from the other end, almost reverse engineering a budget from the tactics we think will best help us achieve our goals.
I’ll explain how I think it can work, after the break.
If you are a small business, or startup, you should be spending 12-20% of your turnover on marketing and if you are an older, well-established business, you should be spending 6-12%. Or, you may have heard of zero based budgeting where each expense has to be justified before it is committed to for the next period. Don’t think I’ve ever met a small or medium business doing that.
People’s advice on this front is interesting because they use the word spending, which implies spending money. Sure, wages on marketing staff are spending money, but they don’t typically count to the strict marketing budget and, besides, money isn’t all that you can spend.
You can spend time on marketing.
That’s why I said earlier that I don’t think I’d have needed all of the larger budget, the $180-$360,000. The reason being is because I’ve taught myself a lot of marketing and creative skills over the years – so they were inhouse. I wouldn’t have needed to spend money externally to get access them. For example, I could design our own ads rather than paying a designer, and that wouldn’t need to be strictly budgeted for. So we saved money.
You see, if you want to improve your marketing, your spend sits on a continuum of time at one end and money at the other.
If you don’t have the time, then you need money. If you don’t have money, then you need time. If marketing is important enough, you’ll find a way, otherwise you’ll find an excuse and that excuse will most likely be that marketing really isn’t a priority in the grand scheme of your business because you do need to prirotise what you need to do. Not prioritising marketing is OK with me, it’s not my business so it isn’t my call. But you can’t run around saying you really need to do more or better marketing and not actually do anything about it.
But, we know a lot of businesses aren’t flushed with cash and even when they are, wouldn’t you want to make the most of every last dollar?
As I said earlier; instead of blindly trying to spend a predetermined percentage of turnover, and trying to figure out what tactics to spend it all on, I think we should be working from the other end, almost reverse engineering a budget from the tactics we think will best help us achieve our goals.
So, how do we do that?
If you’ve bought a copy of Marketing Builder, or been in a Marketing Buidler workshop, this will make complete sense to you. You would have created your visual card-based representation of your buyer journey, laying out all of the marketing tactics you are going to employ.
Importantly, you would have made those tactic decisions based on a clear persona, an analysis of where in your pipeline you need to focus, your over-arching objectives and having set SMART goals.
Even if you’ve never used Marketing Builder those are the steps you still need to go through.
You need to clearly define your target audience. Then you need to run an analysis of your pipeline and look at conversion rates for each step and decide where your efforts are best focused.
Then, you need to decide what objectives you are going to try and achieve to address the stages of the pipeline you want to focus on – is it brand awareness, brand positioning, lead generation, relationship building, community engagement, generating sales, networking, or building an audience and database?
With all of that in place, you then need to set SMART goals – for example, if you are going to try and achieve the objective of building an audience and database, then your SMART goal might be to Increase the database by 4,000 people by December 2021.
Then, and only then, can you truly make informed and engaged decisions about which of the 100 plus marketing tactics you might employ.
However, back to the question of how you reverse engineer a budget from this point.
Well, for Patrons of the show, head to the show notes for episode 11 at marketingbuilder.net, and follow the link to the Patreon page and download the spreadsheet.
If your not a Patron of the show, then for just $4 US dollars per month you can access of all of the free resources, such as worksheets, guides, and templates plus access bonus patron only Q&A shows, access to the Marketing Builder Facebook group, for discussions and advice, an add to the Marketing Builder WhatsApp group where I share my random thoughts and encounters around marketing, access to live shows, streams and recordings and you’ll get a shout out on the show.
To become a patron of the show, just head to marketingbuilder.net and click on the Patron link.
Once you’ve downloaded the spreadsheet, all you have to do is list all of the marketing tactics you are going to employ for the year. That should be an educated list, based on some real ground work. Not just tactics thrown up as possibilities and which you are not committed to.
Then, next to each one, complete the hours and/or cost columns to show how much effort, in both hours and/or money, you would need to execute that tactic properly.
The thing is, remember when I spoke about spending time on your marketing as opposed to money, well, that all relates to things like doing your own social media, or emails, or blogs instead of paying someone else to do it. Either or is fine, but you can save yourself money if you spend your own, or your staff’s time, on marketing instead of simply paying someone else to do it.
That’s why content marketing is so powerful. Advertising means you need to spend money, and usually, its expensive. Sure, lots of it like Google Ads is very trackable and, so long as it fits with you target audience, you’ll see ROI easily.
But content marketing makes the most of you and your team’s expertise, getting all your knowledge out of your head and getting it into content forms like blogs, ebooks, whitepapers, videos, and podcasts. Those are all vehicles you can execute yourself. You don’t always have to pay someone else to help you do that – unless of course, you don’t have the time.
OK, so back to the spreadsheet. You’ll notice that the first hours and cost columns are for weekly amounts. That’s cool, because the spreadsheet will work out the monthly, half-yearly, and annual costs for you so you can consider the total resource allocation through various lenses.
However, once you finish the exercise, and have costed or resourced everything up, you need to look at the total cost and hours and decide if you can actually commit to it. It’s less about the percentages and whether the cost and hours will deliver you your goals that you’ve set.
If you think the resourcing is too much, then start eliminating tactics and see how that affects it. However, a word of warning, remember that you chose those tactics because you thought you needed them to achieve your goals, objectives, and pipeline focus. I’m not saying don’t take them out; just remember to do it carefully.
And that’s how you reverse engineer a marketing budget.