Large companies with significant marketing departments, will have tried and trusted methods for calculating marketing budgets. It will often be a percentage of revenue, and that number will go up or down depending on a whole host of factors, including the state of the economy, growth (or decline) in specific markets, past performance and future ambition. But the methodology used to allocate the marketing budget across potential marketing activities is often far less scientific.
The Bottom-up Versus Top-down Marketing Budget
There are broadly two different ways to allocate a marketing budget: bottom-up, and top-down. Where the marketing budget is large (say, greater than £1 million), different members of the marketing team, e.g. email manager, social media manager or advertising manager, might be required to pitch for their share of the budget, certainly on an annual basis, and sometimes quarterly. This is a bottom-up budget, with individual stakeholders declaring how much they need to run their specific campaigns or programs, and with the total budget being the sum of all the parts. With this method, of course, the bottom-up budget will always exceed the actual budget allocated by Finance, because people will invariably err on the side of caution and ask for more than they need. When this happens (i.e. every planning cycle), a second round of budget planning will need to take place, whereby the marketing leadership team makes a call on which activities are a must-have (e.g. high impact and “keep the lights on” activities) and which can or should be cut-back or eliminated (e.g. low-impact and/or expensive activities).
Keeping The Process Inclusive And Motivating Stakeholders
With a top-down approach, the leadership team will decide how the budget will be allocated, based on a variety of factors, including key focus areas, historical ROI, insights from trusted advisors (perhaps a retained agency or consultancy) and overall business goals. With this method the budget is absolutely fixed (and often non-negotiable). The problem with this method is that it can be non-inclusive, with stakeholders having to work within the budget rather than being involved in the process. This can lead to unrealistic goals and expectations and, as a result, can impact staff morale, motivation and, ultimately, success.
I believe in a more scientific version of the bottom-up approach, which is not only inclusive and motivational for the “troops”, but also, invariably, leads to a united team who are all pushing in the same direction. It is best thrashed out in form of a budgeting workshop. It takes time, certainly one whole day, preferably two. You start with the overall business goals for the forthcoming sales period (be it a quarterly plan or an annual one). From there you devise your marketing goals and (this piece is absolutely key), every marketing goal has to be numerical. For example, “increase leads by 5%, quarter-on-quarter”. Or “increase unique visitors to website by 15%, year-on-year”. By making each goal specific, measurable and time-related it is possible to calculate the budget required to achieve the goal (and of course each goal also has to be agreed and realistic, to ensure that it is truly SMART) . This is because, assuming we’ve been tracking and measuring all of our marketing activities to date, we know the average cost-per-lead, cost-per-visit or cost-per-click for each activity. We can then align each activity to the relevant objective and ultimate goal, and the sum of all the parts will be our marketing budget.
Adjusting The Marketing Budget To Ensure Goals Are Met
Now, of course, there’s still every chance that this scientific bottom-up budget will be greater than the budget agreed with finance, but now the conversation about what activities to adjust becomes more straight-forward. If the actual budget won’t generate the required visits, clicks or leads, then we need to double down on the activities which deliver the biggest bang for our buck (i.e. those that have the greatest ROI).
If, after doing all the due diligence, focusing on the high-impact activities and eliminating the high-cost activities, the target number of visits/clicks/leads is still not hit, then we have a problem. It’s possible that the budget signed off by finance is not sufficient to enable us to achieve our marketing and business goals – which case the goals might not be deemed realistic. Cue, urgent management meeting.
Allocating Marketing Budget To Low-Cost (High ROI) Content Development
However, there’s potentially another solution. Generating more visits, clicks and leads isn’t necessarily about how much money you throw at advertising or social media. An alternate way to increase traffic is to create much more compelling content. If you can create compelling content, and much more of it, then for sure you can drive more traffic (and more relevant traffic) to your website and other online platforms. And then if you have more traffic, and you can put even more valuable content in front of them, along with compelling calls-to-action and lead capture mechanisms, you’ll generate more leads.
It’s possible to create and curate great content through insourcing, i.e. doing it in-house. Sales and Marketing personnel are typically very capable and very knowledgeable, and utilising some of their time to generate and publish remarkable content is a no-brainer. But it’s also true to say that allocating more of your marketing budget to content creation, and less, say, on advertising, can potentially deliver a much greater return on your overall marketing investments.