How to make the most of your marketing budget
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With the economy effectively shut down in many parts of the world, some companies are questioning the allocation of their budgets going forward. While some companies, like Google, cut their budgets in half, another study by Influencer Marketing Hub found that one in four companies plan to increase their marketing budget during the coronavirus.
So how do companies decide how to allocate their funds, especially in times of crisis? How much do business leaders spend on marketing and in what areas of marketing specifically?
While marketing budget allocations likely vary by each industry and vertical, there are also differences related to the stage of business development. We’ll take a look.
Low Growth Firms
Matthew Turner, founder of Boston Turner Group says he’s often asked about marketing as a percentage of revenue, EBITDA, sales, or some other metric, but thinks that should vary as the business grows.
“If you’re a low-to-moderate growth company,” he said, “you need to budget 5-10% of gross margin.” A gross margin of less than 5% could lead to pipeline shortages, awareness issues, and lag behind the competition.
High Growth Companies
For hyper-growth businesses, especially those in the pre-revenue phase, deciding how much to invest in marketing is not easy. “In their first year of revenue,” Turner said, “Salesforce spent 500% of their revenue on sales and marketing expenses, knowing it was more important to their long-term valuation to build a strong foundation. recurring revenue than building a small amount of EBITDA at this stage of their lifecycle, so marketing budgets will vary widely depending on an organization’s goals and stage of development.
Related article: Tips to better manage your marketing budget
Distribution of the marketing budget
Apart from the difficult considerations for investing in marketing, businesses are also tasked with choosing from a wide range of marketing activities when allocating their budget.
Content and SEO
“Fifty percent of the budget is allocated to producing quality content (30% written, 20% audio and visual) that helps our customers solve their problems,” revealed Sim Li, co-founder and CMO of HUSTLR. She thinks it’s crucial to be there for customers when they search for solutions on Google and YouTube. Many marketers believe that content and SEO can provide the greatest ROI in terms of brand awareness and lead generation.
“We primarily invest in content marketing and SEO,” added Dennis Vu, CEO and co-founder of ringblaze. He said that with a little investment in this area, they see more visitors, backlinks, customers and domain authority in just one month. “While most people will tell you it takes months to see ROI from them,” he continued, “we were able to see results as early as a month.”
Technology
For Li, customer-facing technology is also crucial for marketing teams. “We would allocate 30% on software that helps deliver a world-class experience to our customers,” she explained, “for example, software that allows the customer to make a smooth payment without hassle.” Many companies also choose to invest in in-house marketing technology which also leads to a better customer experience.
Experimental
Li also thinks it is beneficial to save about 5% of the marketing budget for experimental projects. Especially with new product launches without supporting data, testing new paid advertising campaigns or new marketing tactics is useful to see what works and what doesn’t. “Then we will use that as a guide for our next campaign,” she said, “if our efforts show a positive return, we would double down on what works.”
When should these allocations change?
“Unfortunately, the problem behind these kinds of questions is believing that marketing is an expense, not an investment,” Turner said. Allocating funds to marketing without having specific goals is often a waste, which is often revenue, but can also be awareness, freemium registrations, or other non-commercial goals. But Turner added: “Without a well thought out marketing plan, you could be doing more harm than good.”
For many businesses, it’s best to set realistic goals and start small before allocating too much money to marketing. “We wanted to try and see what we could accomplish on a small budget before increasing it,” Vu said. They spent 10% of their revenue on marketing because their SaaS product is new, but expect that to change. “Based on the results we have so far, we plan to increase our marketing budget in the coming months.”
While many companies have suspended their marketing efforts to weather the current crisis, Kevin Miller, Founder and CEO of The word counter has a different approach. “I have determined that, specifically based on the current economic environment, as others pull back, we come in and take advantage of the CPM discount.” There’s clearly no one-size-fits-all solution when it comes to marketing budgets, and now more than ever it’s necessary for businesses to know what works for them.
