28. May 2009 by admin.

Here is how to win the heart and the trust of your investors, CEO and CFO…

First make sure that your marketing strategy is aligned with your top line business goals – this seems elementary but it is seldom accomplished - especially when Marketing does not have a seat in the C-suite.

Next, it is essential to develop your marketing plan with measurable tactics to show how your marketing investment will directly contribute to revenue growth. Yes, that means managing your marketing campaigns as a revenue contributor (if not generator) – and not as an expense line item. And yes, that also means creating cross-departmental synergy between Sales, Operations, Revenue Management, and Marketing. 

By measuring and monitoring the performance of your marketing tactics, you will be able to do more of what works and fix what does not. In doing so you will improve your return on each marketing dollar spent (RMOI).

Consequently, when you improve your RMOI, meaning that your campaigns are getting more effective by producing better results with the same initial investment, then you will be able to spend less to achieve your goals. Or, you could choose to grow demand with the same initial investment. Either way, you will directly increase your bottom line!

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28. May 2009 by admin.

How much should you spend on marketing?

If this is a question that you’ve been pondering – you are not alone. This is the most frequent question I have had to answer as a corporate marketing executive in my past life and as a marketing consultant today.  Large established companies as much as small start-ups struggle with how much to allocate to their marketing budget year after year.

The good news is…if you are asking the question, then you are one step in the right direction – which is planning to have a marketing budget in the first place! The bad news is that there is no silver bullet formula. Marketing is a craft that involves too many variables to be able to have a simple solution for a complex problem such as budgeting. Nonetheless, there are some accepted standards and time-tested best practices that offer useful guidance in determining how much you should spend on marketing, namely: budgeting based on percentage of revenues. Several criteria will affect the make-up of your marketing budget and should be evaluated. These include; the industry in which you operate, your revenue model, profit margin, cost per acquisition (differentiate new leads versus clients), and current stage of your product/service life cycle.

Budgeting Based on Percentage of Revenues

As a rule of thumb it is recommended to budget about 5% of gross revenue to marketing. However, it is important to recognize that there are different standards for every type of business. 

Small businesses usually need to budget more of their revenue to marketing, about 7-8%, and start-ups must budget up to 10% or more.

Your industry also plays a big role in determining your marketing budget. For example retailers generally allocate 1% to 5% of gross revenues to marketing, liquor 5.5% to 7.5%, packaged goods 4% to 10%, and most professional services firms 4% to 10%.  It is a good idea to research what the marketing-to-sales ratio typically is in your industry.

You should also take into consideration your revenue model and profit margins. Volume-driven companies tend to spend a small percentage of sales on marketing conversely; margin-driven companies often need to invest a larger percentage of sales on marketing. For example, where a discount retailer may spend only 0.4% of sales on marketing, a specialty retailer will spend 5%.

If you are a start-up, you will need to allocate a higher percentage of projected revenues to your marketing efforts than mature companies. Take into account the initial cost of developing your marketing material and launching your business. As a start-up you will need to invest more into generating awareness and capturing leads to fill your pipeline than established companies that already have marketing momentum in place.

It is also worth noting that you can budget tactical campaigns in a very scientific manner as long as your marketing plan is soundly aligned with your sales goals and if you can satisfy two conditions: 1) you have some historical data to calculate conversion ratios at each stage of the purchase/sale cycle, 2) you know how much you are willing to invest per new customer acquisition based on the average lifetime value of your customers.  Assuming you have these givens, your budgeting becomes a simple arithmetic exercise.

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