Talking about money is always awkward for us Brits. When you live in a country where it’s rude to ask your best friend what they earn, and you can go through four or five rounds of job interviews, before you even dare to ask what the prospective employer might be prepared to pay you, you know that discussions about money are off the table.
Perhaps that’s why, during our sales conversations, our potential clients often find it so difficult to raise the issue of marketing budget. And, if we ask the question: “What funds do you have allocated in order to make your marketing work?”, (avoiding the ‘b-word’ altogether) there’s sometimes an awkward silence, and a slow exhale, but no clear answer.
All big businesses have a clearly defined budget written into their spending plans for the coming year. Small businesses know they need to plan for costs such as insurance or accounting support, and yet they don’t plan for any investment in marketing. If there’s no marketing in the plan, how can a small business ever grow beyond the initial word of mouth phase?
The ‘official’ advice on the size of a marketing budget
When I studied the CIM Diploma, I was taught that an annual marketing budget ‘should’ be between 5 and 10% of annual turnover. So, a business would set its revenue target for the year, and then carve out somewhere between 5-10% to invest in the marketing to generate this income.
Seems straightforward doesn’t it?
Well, sadly, it’s not.
The range is given, because different types of businesses need larger or smaller marketing budgets to support them. When a prospective client asks us what we think they might need to invest in their marketing, we start with this guideline, but also explain the factors that can affect the size of the investment required, pushing it closer to the 10%.
Here’s how it works…
Factors that drive up a marketing budget:
- When you’re selling a service that’s ‘new to market’.
In other words, your target market has never seen anything like this before. That means you’re going to have to do a LOT of educational marketing to get the audience to understand what’s so good about your new thing. Sometimes you might need to take the time to get your audience to understand that the problem your service solves is even a problem that they have. This would have been the case for new teeth whitening services, for example, before we all wanted a Hollywood smile. This means that the lead times between the stages of the customer journey from ‘Awareness’ to ‘Adoption’ (visit this blog for a refresher on the customer journey), are going to be longer than for a service the customer already knows they need, e.g. orthodontic treatment. Longer lead times mean more convincing, and that means more materials, so more investment.
- When your service has more than one person making the decision.
This is more commonly an issue for B2B companies, selling into corporations. If the service you’re selling is a big ticket item, that affects multiple departments within a corporation, you’ll have to sell different benefits to the heads of these different departments. For example, when you sell a CRM system to a corporate, you might need to get buy-in from the heads of finance, marketing, sales, the customer service team, AND the CEO. As each of these would be looking to achieve different benefits from the implementation of the CRM, you’ll need different campaigns and content for each one. That will bring additional expenses to your marketing budget.
- When you have more than one target market.
If there’s only one target market for your service, your marketing strategy will be fairly simple. As soon as you introduce a secondary market for your service, you start to add complexity. Different markets are often looking to get different benefits from your service and all of these will need to be communicated inside different marketing vehicles or campaigns. This will add marketing costs. For example, if you’re a decorator who does residential decorating, but also decorates hotels in the off-season. Your residential customers might be looking for someone that they trust to be in their house, who can deliver a high quality service, without a lot of disruption and mess being made. The hotels might want a high quality service, done as FAST as possible. You might need two Facebook ad campaigns, two website landing pages, and two different flyers for these two markets, making your marketing more expensive.
- When you offer many different types of services.
When you’re well known for providing one kind of service, but you decide to branch out in your business by adding a secondary, different type of service, you’ll need to factor in additional costs for promoting the secondary service. In fact, the more different types of services you offer, the more marketing budget you’ll need to promote them. Think of these services like children. One child is expensive, two children, double the cost. (When you get past six, again just as with children, you start to see economies of scale!)
All of these factors, and more, will affect whether your business requires a marketing budget closer to the 5% or the 10% end of the range.
We can, of course, help you to work this out. Just drop us a line for more information (firstname.lastname@example.org).
Did you enjoy this blog post? Why not sign up to The Drawing Board, our fortnightly email and get our marketing tips and advice delivered direct to your inbox?