In order to achieve the outcomes you desire for your firm, approach your marketing budget less like an extension of your marketing plan and more like an investment decision that drives your plan.
Most marketing budgets are like start-up business plans. They’re developed in painstaking detail. They describe what’s going to happen, but rarely reflect what actually does. They’re usually obsolete the moment they’re finished and are essentially destined to either be wrong or under-deliver. But, why?
All too often, marketing plans describe a set of objectives and prescribe a course of action. “We see these objectives for the firm. We’re going to do these things to reach them. And, we expect to achieve those results.” The budget for doing those things is determined at a later date based on some guesstimates and conversations with suppliers and agency partners. Inevitably the costs of implementation exceed the expectations of the partners. The strategy and tactics as they were prescribed are pruned accordingly. The results disappoint. And, marketing is to blame.
All this can change when we think about budgeting differently. We should budget, first and foremost, not to agree on what it will cost to do the things we want. Rather, we should budget to agree on the risk tolerance we’re willing to accept in order to achieve a desired outcome. In this scenario, budgeting either drives the planning process or it occurs concurrently.
As I see it, there are at least three ways to approach a marketing budget. Two of them are inherently flawed. The third presents a different, more healthy, way of thinking about your firm’s investments in marketing.
A lot of marketing firms will offer you a benchmark for marketing budgeting purposes. They’ll tell you firms of your type or size are investing X% of their revenue in marketing. They’ll tell you fast growing firms spend more or less than this amount. They may go so far as to line item where and how firms invest those dollars.
The implicit assumption in this approach is that if you want to be at par in certain areas or you want to become a leader you will need to invest commensurate with your peer firms as represented by the benchmarks. If you’re not making those investments you’re simply not going to get ahead or keep up.
This sounds logical, but it’s flawed reasoning. I’d describe this as “Keeping up with the Jones’s Budgeting.” Imagine that your neighbors set aside $5k per month in a retirement account, but you’re only investing a quarter of that amount. Are you falling behind? Is your retirement going to be a complete and total failure? Will you be living in a van down by the river? Now, what if I told you the neighbors have 4 kids and you have none? Do your answers change? Of course they do.
A benchmark might be a useful way to check your thinking in the budgeting or planning process. But, it’s not a useful way to actually determine the appropriate budget for your firm.
This approach to budgeting is probably the most common. It loosely follows some of the situations I described in the opening of this article. A firm makes a list of all the things it would like to do from a marketing perspective and tallies the cost of each. They develop a list of conferences they’d like to attend and sponsorships they’d like to make. They create a line item for thought leadership development and pair it with a research and paid media budget. Maybe there are one-time investments the firm would like to make — a new website or a brand refresh.
Again, this sounds logical. Make a list of all the things you’d like to do to market your firm. Hopefully the list comes out of a strategic marketing process. But, often it doesn’t. Itemize the costs associated with each tactic. Determine the total cost. Prune on the edges until you get to a set of tactics you like and a number you’re comfortable with. Then, click go.
The big problem with this approach to budgeting is it often loses sight of the strategic intent (assuming there was one in the first place). It focuses on managing the tactical costs of delivery while neglecting the strategic purpose of implementing on the thinking itself. It encourages the marketer to seek out lower cost resources so they can do more with less. However, in life, we usually get what we pay for. Often, the lower cost resources bring with them lower impact outcomes.
At Rattleback, we advocate for outcomes-based budgeting. In an outcomes-based budgeting process, we start from the end. We agree on the desired future state for the practice, then we talk about the types of investments required to get there. Investment decisions drive strategies and tactics, not the other way around.
Here’s an example to describe how to think about this — imagine your firm has a $5M business intelligence practice and you’d like to grow it to be an $10M practice in 3 years. The first question you’re asking yourself isn’t what strategy should we take to double the practice. It’s what investment are we willing to make in order to unlock $5M in new revenue? Of course, this leads to a whole bunch of follow-on questions like:
- What are the strategies we’d use with that investment in order to achieve the stated objective?
- What’s the risk associated with those strategies?
- If we adjust our investment up or down, how will those strategies change? How will that impact the likelihood of us achieving the stated outcome?
Approaching your marketing budget in this way will create better and healthier conversations between your practice leaders around risk and return.
Manage Your Firm’s Marketing Budget Like It’s an Investment Portfolio
If you’re thinking this approach to budgeting sounds more like managing a mix of investments that’s because it is. In a previous article on budgeting, I outlined how to think about where to make investments in your practice. Should you invest more resources in the cash cow practice that drives your firm today or the new, emerging ones that could drive your firm tomorrow?
When you use an outcomes-based budgeting process answering this question becomes easier. The investments you make become less about how a practice performed in the past or the gravitas of the practice leader. And, they become more about which practices represent the greatest future value for the entire firm. Just like an investment asset, past performance is not an indicator of future results. Investment today is based on perceived future earning potential rather than yesterday’s returns.
Of course, there are certain marketing investments that pretty much just have to happen year over year. Yes, you could get rid of your CRM. But, where will you store your contact data? Where will you go to track pipeline and opportunities? Where will you go to anticipate what’s going to happen in the year ahead (using real data)?
My good friend, Jeff McKay, likes to call these investments programmatic marketing. Programmatic marketing investments likely have to happen regardless of how you go about budgeting in your firm. So, it may be useful to start with a list of programmatic marketing activities and investments you pretty much have to make year-over-year to be a successful marketing organization. Then, open up a conversation about desired growth objectives and the investments your firm is willing to make to make those things happen. The firm’s risk tolerance drives the budget. The budget drives the plan. And, hopefully, the plan drives the growth.