Budgets are always a tricky issue. And when it comes to marketing, budget allocation becomes even more difficult. Most firms struggle to justify the return on Investment (ROI) on a marketing spend.
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Then how are budgets allocated?
Firstly there is a general rule of thumb. Most firms allocate 1-2% of the firm’s revenues as marketing budgets. Now there is a great variation as to what this entire budget would cover, I am sure Fast Moving Consumer Goods (FMCG) would allocate much more than that. So for example if the firm’s revenues were a Crore of Rupees, then the budget would be Rs. 1-2 Lakhs. Most budgets are allocated to new brands and products. In the classic BCG matrix the cash cows generate the revenue to fund the marketing budgets of the stars.
A second method is to look at a previous year’s budget and increase it by say 5-10%. This method is a very unscientific method but works well with most firms where the marketing discipline is not mature. For example is last year the budget was Rs 1,00,000 then the next year they will increase the budget to Rs 1,10,000.
A third more scientific way would be to use predictive analytics to understand the new marketing opportunities and to allocate budget accordingly. So if there is new products launch which would require the firm to put on a very slick promotion then that has to be budgeted for. As the product and its marketing did not exist last year using method 2 would land the firm in trouble. Also as the revenue from the product would not be realized for a year, method one would also be very ineffective.
Whatever the method being used, the maturity of the marketing methods and market management techniques plays a very big part.
But the key to budgets is ROI! And these are some of the methods as to how ROI is calculated.
Leads generated
Marketing activities often lead to many enquiries which have to be followed upon either by marketers or by sales if marketing is not mature. All these have to tagged in the Customer Relationship Management systems (CRM) in order to give a value to the marketing effort. The leads could be generated from Physical events, Virtual events, and other marketing led initiatives.
Number of hits on website
Another Interesting method used in digital marketing is the number of hits on the website, including the downloads and registration forms
Number of attendees at events
In many B2B scenarios it is marketing responsibility to drive traffic to both physical and virtual events. Registration details can form an interesting analysis for Marketing ROI.
Media Mentions
More of a PR function, but in most organizations PR is a form of marketing. Another important benchmark is mention in analyst and Industry reports.
The key is to ensure that there is a quantifiable benefit of marketing. At the end of the day the goal of marketing is to support business. The more quantifiable the result the easier it is to get more budgets allocated.
Let us know if you have any questions or comments and I would glad to take them up!