Without doubt, however a conversation starts regarding Marketing requirements, I know that the person I am talking to ultimately wants this question or similar answered first and foremost.
In the end, we all think this way as business people. Whilst all the benefits of a product or service are wonderful, price and cost are the clincher to most of our decision making. The general ‘rule of thumb’ to start planning a marketing budget is to allocate 5% of annual turnover forecast or 20% of gross profit. Very roughly, this is good gauge but it very much depends on your business type, status of the business for example start-up or established and many other factors.
So why don’t marketing people simply ‘tell you the price‘ and get it out of the way?
Is Marketing a Cost or an Investment?
If I am buying a capital item, let’s say a van, for my business. Then the perceived value it offers me is apparent as I can tangibly touch, test drive then move goods or offer services as a direct result. There is a cost (of the vehicle and running it) that can easily be equated as a ‘good investment’.
Then that investment depreciated accordingly. I know tangibly what I am buying and the outcome it gives my business. In the end however it is simply a ‘cost’ at best a depreciating ‘asset’.
Marketing is intangible, a value adding service attributable to profits on the bottom line, at least when it is delivered well.
Very difficult to assess in advance one marketing service provider from another or compare the worth of the marketing channels or solution being offered, at least until it the Campaigns are running and results start to show. So, in the same way as say investing into shares, there is an element of trust, insight, forecasting, experience, faith and risk.
There are no guarantees, despite claims by too many marketing ‘experts’, that the equation of:
Money Spend (cost/price) = £ Guaranteed Return
As such Marketing is an investment, a value proposition. Over time, working with experts, deeply on insights and refining will result in better ‘returns’ and lower ‘costs’. There will be an emergent pattern that links indirectly investment to sales. But until a solid investment of time, testing and money is made there is no ‘crystal ball’ to forecast results or effectiveness.
Marketing cannot and never has been a service that can definitively give a ‘guaranteed outcome’ or even a ‘comparative’ to another client that the Marketing Team Member or Agency have previously done work for.
The variables are not so much about the performance of these marketing ‘tools’ or channels but the fundamental marketing mix which is often forgotten or deemed too ‘theoretical’ (it is of course not’).
These variables of the marketing mix, shown below in the diagram, need to be carefully and expertly balanced to attract the target market, nurture the relationship and in turn convert all that investment into profit.
Skipping over the Marketing Mix and pinning investment into thinking about 1x marketing channel, which I often find is to ‘buy a website and the customers will come‘, will result in marketing and potentially business failure.
Marketing Return On Investment
ROI in terms of bottom line profits can be achieved with marketing being a factor in the equation.
Although not totally attributable or causal, that is simply due to the fact that true £ROI is a measure of the end to end buying cycle from:
- Awareness (Brand, Communications)
- Customer touch points (customer experience, merchandising, customer services, web experience, social media)
- Sales (online or by sales teams)
- After Sales / Sales Care (key to reputation)
The confusion often comes when £ROI tries to be directly attributed to Marketing without end to end tracking of ALL these stages. Which is partially achievable in the case of E-Commerce, but even then ‘what were the attributing factors that influenced the conversion’ must be factored in. A good example being Branded communications, which may trigger the ‘desire’ (e.g. Perfume, High End Clothing) but not be directly attributable to the ‘purchase’.
There is no doubt the likes of Gucci, Burberry and so on spend £/$Millions on branded communications in magazines, TV and billboards for a very good reason! Yet, no customer ever says in Duty Free ‘oh yes, I bought this perfume directly because I saw the TV advert’ .
They are relevant to each other but very hard to directly correlate to one another, just over time the Companies know that by investing into these particular Marketing channels there is a global effect on sales.
How Much Should A Business Be Investing Into Marketing?
This is the cruncher question, the crux and are you ‘investing’ or ‘spending’? And of course, it starts with deciding if one is going to recruiting an in house marketing team or hire an Freelancer or Agency.
The smallest businesses that contact me tend to want to ‘DIY’ their marketing e.g. social media and Wix websites, emailing etc. Mainly for lack of cashflow reasons, which is totally understandable. Investing their ‘time’ on trial, error and learning from fragmented online resources and conflicting advice. Rather than investing their time into the business itself. A few I know have had great success, most do not and end up sourcing professionals (hopefully) at low rates with very mixed results.
For SME, Medium and Larger businesses more serious considerations come into factor such as cashflow, revenues, ensuring overheads and resource costs are met. Fuelled by sales turnover and profitability. The investment into marketing to compete is essential for survival.
The nearest to a ‘rule of thumb’ for Marketing Investment as an average is either:
- 20% of Total Annual Turnover Forecast
- 20% of Net Profit Forecast
It’s just too broad of a brush in my view, but focusses correctly on ‘Forecast £’s’ compared to ‘Marketing Investment’. So gives a reality. Sector and business dependent this will vary wildly e.g. Fashion industry this ‘rule’ is far too conservative, for a well established Law Firm this is probably too high.
Sorry, but there’s no ‘simple answer’ or ‘silver bullet solution’ at the end of this article to conclude the opening question, but I hope I have expanded on why having:
- A marketing strategy
- Linked directly to Business Objectives (Growth)
Is critical to realistically budget set for Marketing Investment. This is where Marketing expertise and working with Marketing experts comes into its ‘true value’ state.
Not just being a technical expert on say Facebook or SEO, but ensuring a fully rounded, costed Marketing Plan is in place. And someone who can indeed guide you towards reputable, high value but cost effective marketing solutions (or providers).
And in my view that is really how much marketing should ‘cost’, at the very least an investment of for example a few £000 for an SME into the strategy and planning stage. Before choosing the ‘how’ (web, SEO, social media etc) to invest the budget wisely to drive sales potential or other objectives.