Developing a Marketing Communications Budget: Are You Adequately Funding Your Promotional Machine?

Jim Walton

By: Jim Walton - President, Brand Acceleration, Inc.

Category: Marketing and Brand Development

It's a question I'm asked often "how much should I be spending on marketing communications (marcom)?" It's also a question that is very difficult to answer. Since there is no magic formula that fits every company or organization, the approach is as much an art and science as it is about finance and formulas.

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First, let me explain a very common approach to developing a marcom budget. Although we sometimes have to work within this approach, it ˇs one that we feel is less than optimal. It involves the creation of a list of tactics; brochures, ads, web sites, etc., and the total cost of creating each. With this approach, you run the risk of dangerously under or over funding your effort. To us, it ˇs more important to focus on a powerful and believable message than on a list of tactics that may or may not communicate in the most effective manner.

The budgeting process must begin with management. They should request a detailed marketing communications plan that outlines the basis for spending. It should explain how the budget was set, the competitive arena, the economic situation, and specific initiatives and objectives being supported. It should also outline the planned message strategies and the tactics to be used to carry them out.

So, the step-by-step process is as follows: Budget ˇć Message or Positioning Strategy ˇć Tactics.

Okay, let's consider the numbers. I like the percentage of sales approach. Using last years gross sales or this years projected gross sales as the starting point, you take a percentage of that number and assign it to the marketing communications effort. The percentage used will vary depending on your industry or your situation. One good place to start would be to consult your trade association to see what is normal for your industry. Generally speaking, the following percentages are used:

Automobile manufacturing: 2%-5%
Retail products: 2%
Service industry: 3%
Highly competitive consumer products: 8%-10%

But, there are variables to consider that might require you to spend more or allow you to spend less. For example:

Brand maturity: Is your brand new to the arena or very mature and widely known?
Competition: Is there a new or powerful competitor who is trying to kick your butt?
Change: Are you trying to change your brand position or grow market share?
Industry condition: Is your industry growing or shrinking?

The economy is also an important factor. It ˇs very common for an organization to reduce the marcom budget in a slowing economy. I believe this is a perilous move. Companies that maintain a respectable effort are more likely to grow market share and will generally enjoy a quicker recovery when the economy improves. Keep up the fight.

What should be included in the marcom budget? I like to break it into two sections: advertising and sales promotion.

Advertising includes everything from design, media, brochures, public relations, e-newsletters, promotional videos, exhibits, and benchmark research. It does not include business cards, letterhead, envelopes, etc. Those are office supplies.

It should also be noted that sales expenses should not be included in the marcom budget. Expenses such as salaries, commissions, travel, training, and incentives should be budgeted separately.

Included in the category of sales promotion, you should budget for coupon expenses, point-of-purchase displays, promotional merchandise, give-aways, apparel, gifts, etc.

Do you find it hard to believe that companies are spending the above-mentioned percentages? Consider this; if you're grossly underfunding your promotional effort, compared to your competitors, you are much more likely to lose market share and suffer staff turnover. If your goal is to grow your business and attract the best people, you'd better get real about promoting your brand. You're either growing or you're going. There ˇs no middle ground.

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