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Shortcuts to Calculating your Marketing Budget
 Your CEO has asked you for the 2008 marketing budget. Yuck. Why does budgeting time seem to creep up on you each and every year? And we know you'd like to find someone to do the work for you or maybe just provide a few estimates of what you'll need for marketing (with a nice little increase over last year), get it approved and call it a day.
But that doesn't work (if it does, please let us know how or where!). Instead, you will likely be asked to justify each and every red cent you want to spend and what it will generate in terms of revenue. Even worse, you may be handed a budget figure based on some arbitrary formula that doesn't take your goals and objectives into consideration.
What to do? How do you come up with a workable budget - and get it approved?
It starts with strategy.
A good budget should be based on the quantifiable goals and related strategies found in your strategic marketing plan.
Trying to increase sales of an existing product by 5% by introducing it to a new target? You'll need additional creative and enhanced distribution to best reach your new targets - that has budget implications.
Branching out into new geographic areas? You'll likely be looking at a larger media buy to establish your presence - that has budget implications.
Considering a new product development initiative? You need market research - that too has budget implications.
Without some idea of what you're trying to do and how you'll do it, you're just shooting in the dark when it comes to a budget. (If you don't have a strategic marketing plan, you need one. Log on to our website to find out how, or call us!)
Be realistic.
Different CMO's have extremely different budget philosophies - from the "let's put every conceivable item in the budget and see what we get" to "we need to control costs, so we won't ask for too much."
We recommend to our clients that they take a middle of the road approach. If you take the "ask for everything" approach, you risk coming up with a budget that's so far out of the realm of reality that it gets rejected out of hand or slashed without a thought for the strategies behind it. Also, can you really accomplish all the things you've loaded into your budget? With the "don't ask for too much" position you risk not having the resources you need to accomplish the objectives and expectations for the coming year. There's nothing virtuous about promising the CEO a major media campaign to generate business but not having the budget needed to properly execute it.
What about budget formulas?
If you look hard enough, you can uncover someone using just about every budget guideline or formula available: 5% of sales, 10% of sales, 1% of sales. Some companies use a percentage of projected sales. Some use the previous year's budget plus a percentage increase.
The problem with formulas is they just can't take all the intangible and tangible factors into account. Some industries require more expensive marketing than others. If you are a start-up, your marketing costs will be substantially higher in the early years. Companies with a large geographic market area spend more.
So set the formulas aside for now. Start with a blank budget sheet, this year's marketing plan and last year's budget. Look at any new strategies, where your budget came up short last year and any expenses that have changed. Figure out what budget you need to accomplish your objectives in your markets against your competitors. You'll come a lot closer to knowing what you need to get the job done.
Look at the ROI.
It's no secret that measuring marketing, advertising and pr is a challenge that can lead to controversy and argument. While there is a much larger discussion we can have, let's stick to ROI and the budget. Whether or not you have a sophisticated measurement system in place, be prepared to demonstrate at least the basic returns you expect from your marketing strategies. Show how specific activities will generate sales, contacts or inquiries. You may not be able to do this for every pr strategy or every piece of collateral, but you should be able to demonstrate overall gains in sales, market share, new customers, retention or other key indicators that are important to your company.
Don't overlook overhead.
It's easy to identify big-ticket items like media campaigns or ad agency fees. But frequently marketers get caught on smaller items and internal costs. Ongoing and day-to-day costs like postage, reprints of existing materials, web maintenance and enhancement, etc. can eat up precious marketing dollars if you forget to include them in your budget. Another overhead item often overlooked is staff. Can you accomplish the aggressive objectives you have with your current staff? If you are planning to have your sales staff cover a larger market area, will they need additional help back at the office since they will be gone more? Do you need to spend on personnel development or training to upgrade skills? (Salaries and benefits are often taken care of in human resources or finance, but make sure any raises or cost of benefits that impact your budget are accounted for.)
Making the Case.
The CEO, CFO or budget committee will be focused on the bottom line numbers - and you better be, too. A few tips for presenting and justifying your budget:
Speak their language. The CFO is much more concerned about the incremental revenue your new creative campaign will produce than the fabulous new campaign creative.
Have information on competitive spending and industry trends. If your CEO wants to know why your company isn't "everywhere" like your major competitor, show some hard data about what each of you is spending. Likewise, know what's happening in your industry in terms of marketing budgets.
Make sure your communication goals support overall business goals. Every single objective and strategy in your plan should directly support your company's vision, mission and goals.
Be prepared to give up something. Have your heart set on a campaign that will double media costs? Show what happens if you spend 20% less. Want to expand your sales force to cover three new markets? Present projected results if you only cover two. Go ahead and ask for what you want, but be ready to show what you can with less if you have to.
With a little number crunching and a lot of strategic thinking, your 2008 budget meeting just might not be so bad.
Need help making your marketing dollars work a little harder? We can help.
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