Question

Topic: Strategy

Creating A Marketing Budget

Posted by Anonymous on 5/27/2010 at 3:46 PM ET 250 Points
I am currently faced with a new positional responsibility of generating and evaluating marketing budgets for my division. Last year we ended up using over 10% of our gross profit towards marketing as a manufacturing company - including samples, trade shows and sales calls. A lot of these efforts went in vein and yielded no direct return.

As I said, I am new to this assignment and want to know the best manner in which to budget and evaluate and plan for the remainder of this year as well as next year.

Any insights into how to create and evaluate a this budget would be greatly appreciated.

Thank you!
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RESPONSES

  • Posted on 5/27/2010 at 4:36 PM Accepted
    You need to start your process by clearly defining what the objective is. What does success look like for marketing in your company?

    Are you trying to create a brand image that will give you a leg-up when salespeople call on new customers? If so, who exactly is the target audience and what is their awareness level now? How much brand awareness is enough? (Each additional percentage point costs money.) How much do you want them to know about you? (Each additional bit of information will have a cost attached to it.)

    Are you trying to generate leads? If so, how many? How qualified? (More leads cost more. More qualified leads cost more than less qualified leads.)

    Etc. Etc. Etc.

    Until you understand the objective, there's no rational way to establish a marketing budget. And until you cost out what it will take to accomplish the objective, you won't know whether it's even possible to deliver it within budget. At that point, you may have to adjust the objectives ... or find another strategic approach.

    The other thing you'll need to do is earmark some of the marketing budget for measuring where you are now and how you're progressing throughout the year. If you don't have good metrics in place now, the amount of time and money required the first year will probably surprise you. But it will be worth it if it lets you reduce your spending and get better results over time. (The benefit will be ongoing, even though the bulk of the initial expense will be a one-time-only expense.)

    Hope this helps.

    "Always begin with the end in mind." (Thanks to Steven Covey.)
  • Posted on 5/27/2010 at 4:58 PM Author
    It is definitely a difficult beast - especially being a smaller player in the company. I think that the intent was that I would look at the numbers and not know where to go with them and the marketing plan would be as lackadaisical as it has always been.

    I am however seeing a lot of completely useless marketing and travel expenses and am trying to find the best way to plan our travels and marketing efforts and gently refute pointless projects.
  • Posted on 5/27/2010 at 5:09 PM Accepted
    If you don't have a clear objective, then chances are everything is a "pointless project." If marketing isn't making you money, then it's costing you money.
  • Posted on 5/28/2010 at 8:37 AM Author
    oh goodness :) - well it looks like this is a goring experience in a multitude of professional areas - from financial review to project planning and goal setting to budgeting ... to being forceful ...

    I appreciate your input and will begin working with the team to create a plan and set the boundaries of our budget for these plans.

    I had seen in another post that there was something to the extent of - a percentage of last years revenue that could be allocated towards marketing. Going above that number would draw from next year's numbers and staying below would create a marketing "bank"... does this sound correct?
  • Posted on 5/28/2010 at 12:04 PM Accepted
    Basing your marketing spend on some percentage of sales (whether it's last year's or this year's or any other year's) is absurd.

    Your marketing spending should be based on what you're trying to accomplish. Are you in growth mode? Are you trying to maximize profit at the expense of growth? Are you introducing new products? Entering new markets? All of these things will impact what you need to spend on marketing.

    Don't think of marketing as an expense category. Think of it as a profit center. You spend money on marketing because you expect it to generate more profit than it cost. If it isn't generating that profit, stop spending. Test alternate approaches until you find some that actually make you money. Then spend like crazy on those.

    If you knew you could generate $10 in incremental profit by spending an additional $5 on marketing programs, you'd beg, borrow and steal as much money as you could to invest in that marketing machine. But if you knew you were only generating $2 by spending that $5, you would stop, wouldn't you?

    It makes me nuts when people spend money on marketing because (a) they've always spent money on marketing, (b) they think that's their job, (c) they have a budget and will be faulted if they don't spend it all, or (d) any number of reasons other than the one that counts -- to generate profitable sales, now and into the future.
  • Posted on 5/28/2010 at 12:40 PM Author
    BEAUTIFUL! Thank you all so much! ... I can't express how much this helps.

    I will continue to evaluate our previous habits to show WHY we need to change and hopefully we can review each project as it shows it's face to determine the potential gain versus the invested marketing costs.

    we are, and always have been in the "growth" model - but I do feel that it needs to be controlled.

    Thank you Again
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