But before you sign the cheque…

Company owners can do some groundwork to help determine an accurate marketing spend for their cause. Most marketing horror stories start with a company being uncertain of their own plans and then offering a marketing agency a blank canvas to pitch.

There are three key questions to consider when planning a marketing budget (this can be considerably more complex depending on a company’s circumstances, but as a basis, we start with the following):

  1. What do you want to achieve? Is it a revenue target, a reputation development objective, increased growth (market share), sustainability, diversification, or a combination of objectives?
  2. When do you want it? Is the objective a slow burner where low risk is the priority, or are the decision-makers in a mad hurry?
  3. Who is in the way? In other words, what does the competitor footprint look like? Who are the biggest threats, and how many are there?

There is no rule or metric to determine the right marketing budget, but rather a series of questions a company needs to ask itself to improve the probability of finding the right investment to match its plans.

A Couple of Opposing Examples  

Let’s take the cases of two mythical companies at each extremity of risk appetite and requirements:

  • Happies Nappies – the Australian company looking for world domination; and
  • Terrance From Down The Street Who Does Various Tasks – the solo operator looking for a comfortable way to spend his days.

What Do You Want to Acheive?

Happies Nappies

Happies Nappies wants to be seen, heard, known, referenced, sought, and idolised. When the world thinks of containing the excrement of young children, they think Happies Nappies. They may not buy Happies Nappies, but it is first brand to come to mind.

Consider how competitive the nappies market is (if you don’t have children I can tell you there are crap loads of competitors…) To be the premier provider, the market leader, THE brand in child waste containment in a market that is saturated with competitors and in an industry that is not terribly glamourous, dollars need to be spent, and they need to be spent consistently. In all likelihood it will still take a year or two before Happies Nappies starts to be heard, seen, and trusted. But the long game is mega-profile, so spending is acceptable.

Terrance From Down The Street Who Does Various Tasks

Terrance From Down The Street Who Does Various Tasks on the other-hand couldn’t care less about profile and presence. Tez wants to have a daily purpose and be free of demands, managers, offices, and typical business administration. The reality for Tez is that business slowing down would only negatively impact him in that he may get bored on the quieter days. Being too busy would actually be worse.

For Tez, his marketing spend could be as low as zero assuming he consistently did a good job and had habitual buyers, or could be as manageable as a couple of hundred dollars spent on fridge magnets and letter box material.                

When Do You Want It?

Happies Nappies

The executive team at Happies Nappies are in a hurry. They want to be market leaders inside five years. They are not interested in messing around for half a decade being mid-tier playaz.

This requirement increases the marketing need further, specifically, in the diversity of channels required to achieve the objective (online, offline, promotions, sales campaigns, give-aways, demos, sponsorship, mobile billboards etc).

Typically, our advice is to use channels where the majority of the buyers are because there is the greater return on the spend. But for Happies Nappies, it’s not about the majority of buyers, it’s about all buyers. The only option is to be everywhere, all the time.

Terrance From Down The Street Who Does Various Tasks

Tez on the other hand doesn’t need to be anywhere and doesn’t need to be there by a specific time. So long as he turns up, is polite, is suitably priced, and responds to communications, the work will (probably) keep turning up. We’d suggest being more proactive than this, but it’s completely feasible for enough work to keep Tez occupied without needing an abundance of marketing, if any.          

Who is in the Way?

Understanding the competitor footprint is critical in that it will provide insights into what approaches are available to a company in order to achieve their own objectives. Simply put:

  1. The company can attempt to replicate competitors in the market (price, benefits, prestige etc); or
  2. Identify what the competitors are doing and do something noticeably different (but still relevant to the buyer).

Option one is likely less risky as it has been proven to work, but with that comes a much higher price tag and likely a longer timeframe for traction (think challenger brands). And eventually a difference will be required in order to change buyer behaviour.    

Option two will likely be cheaper but is also riskier as “different” is most likely to be untried and untested. Results are theoretical.

Happies Nappies

Happies Nappies realise that option one will likely take too long to have an effect, so they choose option two. They work hard on defining their unique selling proposition in line with focus group studies and market research. They attack day-care centres and hospitals with free stock, they set up online product subscriptions (free delivery!) to avoid the supermarkets, and send out loads of free samples to parents around the country via a social media program. They commit to developing more environmentally sound materials for their products to limit landfill and become a pioneer in the comfy-eco-nappy industry.

Terrance From Down The Street Who Does Various Tasks

Tez on the other hand follows option one. The guy in the next suburb runs a pretty decent business and seems to do little more than have a functional website with online bookings, fridge magnets, and has his 16-year-old daughter doing Instagram for him. Tez can see this being a pretty easy commitment at minimal outlay and saved a few dollars by bribing his daughter to work on Instagram for free in exchange for car usage occasionally.

So how much do they spend?

Happies Nappies

Happies Nappies wants world domination within five years. Their risk appetite is high, and the end game is to be in a long-term market-leading position. They acknowledge that the hard part is to be heard, seen, and experienced in the beginning so they are prepared to go marketing-hard.

Their above the line strategy, content strategy, and PR program all drive the message that they are the world’s best nappies. Comfortable, well priced, better for the planet, and with patented rash-protection technology. Their decision-making team are all parents and run annual community campaigns like the SIDS Nappy Dash where participants do a fun run in a Happies Nappies product to raise funds for SIDS research. They team up with some of the country’s highest profile sports teams to style up their shorts like Happies Nappies, which isn’t wonderfully well received by supporters, but is incredibly successful for profile and brand awareness.

Happies Nappies signs off on a $50 million dollar TV, content, online, promotions, and events program with quarterly milestones and annual reviews over five years.

Terrance From Down The Street Who Does Various Tasks

Tez on the other hand agrees to outlay $2,000. $1,500 for a website designed by a friend of the family, and $500 for fridge magnets. His car insurance premium goes up by $200 to factor in his daughter’s use of the car in exchange for Instagram skills. The website will not change for five years, and magnets may need to be reordered in 12 months, but a reorder will be assessed at the appropriate time.

How much should I spend on Marketing?  

From a distance, the answer is always, “We don’t know.”

We say 5% of earnings as a benchmark to those who want a drive-through answer. But if we can explain the process for determining how we reach a figure, it’s almost never 5% – maybe more, maybe less.

But in terms of working out what you think you should be spending on marketing from within your company, asking yourself “what do we want to achieve, by when, and who are we up against” is a really easy way of setting some expectations for the spend.