With the sea of data and huge number of channels, knowing where your marketing budget can be spent can be overwhelming.
However, if your business has been trading for more than 2 years, you will have enough data to understand where you should be spending your money.
Historically budgeting for marketing was set at the beginning of the year, based on targets set by the leadership team.
Quite often the budgets were not reviewed frequently.
In our research we found 64% of leading businesses (Legends) evaluated their marketing performance against their forecast at least on a monthly basis. This compared to only 37% of trailing businesses (Oafers).
With digital, a lot of the data is available, which has allowed organisations to plan in different ways. One of these is Zero based budgeting.
Deloitte summarised the pros and cons of using zero based budgeting.
The challenge of Zero Based Budgeting is that it can be a complex timing consuming process, but the benefits are clear.
It enables organisations to improve their efficiency and spend by validating assumptions at every level. Furthermore it helps organisations create cost savings where it is needed based on past performance looking at specific campaigns or channels.
” To succeed, organisations need to create detailed performance based budgeting, using the organisations financial goal “
Financial officers are frustrated at the lack of commercial competence in marketing. This was evidenced in a report from Marketing Week, which reported 83% of marketers were unable to quantify Return on Investment (ROI), but 49% of marketers insisted on being handed more control of the financials.
Econsultancy also found 60% of Marketers had pressure on them to prove Return on Investment. Although this has dropped from a high of 66%, there is still a majority of marketers finding they need to prove the value of their marketing
The more sophisticated organisations were able to forecast Return on Investment (ROI) at a granular level.
In our research we found leading businesses (Legends) were more than four times more likely (50%) to forecasting ROI by channel and device. When you compare this to trailing businesses (Loafers), only 9% managed to measure ROI by channel and device.
We also found
50% of Legends had total responsibility for the marketing spend vs. only 27% of Loafers had complete ownership of the marketing budget.
” To have a greater ownership of the marketing budget, marketers need a good grasp of detailed ROI measurement, using channel and device performance “
Using a guideline, looking at budgeting for marketing as a percentage of revenue, is spot on. In the last CMO survey August 2019 the percentage increased to 9.8% from 7.3% from the previous year.
However only using this metric, doesn’t allow organisations to monitor and make the most from their budget.
An important factor is to continually measure your performance and adjust the budget. However, there is still a large gap between those that do forecasting and leave it vs those who revisit their forecast during their financial year.
Budgeting for marketing was revisited more than twice a year by 93% of Legends compared to 37% of Loafers. Even more telling was 27% of Loafers never adjusted their budget.
So does the extra planning required from Zero based budgeting, detailed ROI measurement and continual adjustment of budgets work?
We found 57% Legends had increased their revenue by more than 10%. Whereas 46% of Loafers digital revenue remained the same.
” Continual monitoring and adjustment of the marketing budget is crucial to successful results “
Never let your campaigns write cheques that your website can’t cash.
Avinash Kaushik Digital Marketing Evangelist, Google
During our research with London Research we profiled the behaviours of the top (Legends) and bottom (Loafers) performing businesses. Ok so loafers was a bit harsh but we’re just trying to spur you on to become a legend.
The table illustrates how each profile behaves and the key differences to successful budgeting for marketing.
Start with defining what your organisation wants to achieve.
This will have a big on how you set your budget. Creating a plan for growing revenue, is very different from one which aims to improve profit through reducing costs.
In this example: We are going to look at growing Revenue by £1m.
Now you have your objective, map out the levers which will help your achieve your target. These will vary depending on your route or channel to market.
In this example: We are going to look at the Ecommerce channel only to give us our £1m growth in revenue.
For the given channel/route(s) to market, we now need to understand what the gap is. To do this you will need to understand how many of your loyal customers will purchase and how many lapsed customers will come back. This will give you an outline of the new customers you need to acquire.
In this example: We will map the existing customers who have purchased from our Ecommerce website. We will also look at the revenue gap we are left with, once we take away existing customers contribution.
Now you understand the gap and number of customers and sales required, it is time to create your funnel. In this example we will work backwards from the revenue to number of visitors, footfall or phone calls we need to get.
In this example: We will look at our Ecommerce funnel and identify the number of NEW website visitors we need to get to achieve our £1m revenue target. We will use the gap of £250k from step 3.
For your channel/route(s) to market, rework your original funnel from Step 4 using the same targets, but create it as budgeting funnel.
This will allow you to understand the costs required to obtain your “new audience” identified as the gap in Step 3.
In this example: We look at the costs of acquiring the new audience on the website. We also look at the cost of processing this audience in terms of getting the order captured and fulfilled.
Once you have carried out the above 5 step plan for budgeting, you will need to carry this out for each channel where customers can buy your products or services.
This will help you build a full picture of your total customer activity, performance/contribution of that sales channel and what the required budget will be to deliver that sales number.
The output will be a forecast which you can then use to determine your required budget.
From here you can start to plan your media activity, proposition and promotions to deliver against the top line budget.
We normally find marketing forecasting is used to predict what traffic, conversions and revenue the business might expect.
The marketing forecasting is used to then set the confirm how much traffic and therefore transactions are needed on the website to meet the target number of leads or revenue.
Once you have the target traffic you will be able to split this into organic (what comes naturally to your website) and what traffic you need to pay for.
The paid for traffic and the costs associated with it then form your budget.
There is no silver bullet for your marketing budget. You can only predict your budget based on information you have to hand.
You can only work with the data you already have. Do not forget to use your data (your growth) and any industry benchmarks (market trends) to assess if the budget you have set is correct. You want to ensure you have the balance of your growth or decline against the backdrop of the overall market changes or trends.
Once you have set your budget the best thing to do is to monitor this closely and see how this tracks you performance year on year. If you outperform can you invest further? If you are underperforming do you need to reduce costs or reinvest elsewhere?
Budget accuracy is obviously key to all businesses, but measuring the right metrics is key to this being a success.
Using metrics such as pages viewed, time on site, total traffic or click through rate are helpful for diagnosing why things happened but will not help you build an accurate forecast and therefore a budget.
Try to use metrics which allow you to monitor the performance of your business such as revenue, conversion rate, cost per acquisition and average order value and cost per acquisition.
Break these metrics down by source of traffic (how people got to your website) and by device.
Once you have this in place you will be able to accurate measure your budget on an ongoing basis.
To help you understand the elements involved in creating your marketing budget we have created an assessment which is available here. This budgeting for marketing assessment will help guide you through what you current maturity is and what you need to do next.
It will give you bespoke, bitesize recommendations based on your answers, so you have a plan of what to do next and how to validate what you are already doing.
If you would like to learn more about the marketing budgeting assessment you can read about it here, and the 4 different maturity levels.
Below is some recommended content to help you with your analysis in marketing. This content is mixture of content, tools or our book to help you get more out of your digital marketing and data in your business.
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