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    Some people think of marketing as an expense or unavoidable cost of doing business. It’s true that marketing appears as an expense item on an income statement. But if we treat marketing expenditures and the resulting activities as investments, with a focus on Marketing ROI, we can better demonstrate their impact on the business.

    There is no set percentage of revenue that should be spent on marketing. It really depends on many factors including: available funds (start-ups may want to spend more but have limited resources), type of market (consumer or business), maturity of the market, scope (size of market opportunity) and competitive position. In all cases it’s not just how much funding is available but how effectively those funds are used.

     

    Justifying a Marketing Budget

    When developing a marketing budget you must have specific objectives to guide spending allocation. Marketing budgets cover many different areas. Some activities yield more measurable outcomes than others. If an activity cannot be tied directly to revenue or profit, it should nevertheless be measured against specific, quantifiable objectives that ultimately support revenue goals.

    Some questions to consider when setting and justifying a marketing budget include:

    1. What are the specific objectives of an activity and how will it impact revenue? If revenue cannot be quantified, what outcomes can be? For example, a trade show may have the objective to generate a certain number of new sales leads, appointments, or interviews. A digital campaign may be measured by number of unique website visitors, time on site or number of click-throughs. All these results can ultimately be tied to revenue attainment through a disciplined lead management process. Benchmarking and regression analysis can also help establish baseline performance expectations.
    2. How good have you been at forecasting and measuring objective attainment? While this may be hard to do for many marketers, it is essential for developing credibility and accountability within the organization. Ultimately marketers must set realistic, measurable and achievable metrics. Learning from past experience will help you better predict the future.
    3. Are the proposed spending items correctly prioritized? Prioritization should be based on the scale of the forecasted outcome and the probability of achieving it. Sometimes more modest objectives should be prioritized when there is a greater chance of success in the face of internal and external hurdles.

    A marketing budget is intended to fund the execution of a marketing plan. An important tool for managing the marketing plan and ensuring acceptable Marketing ROI, is by setting Key Performance Indicators (KPIs) for each budgeted activity. Marketing KPIs should be agreed upon with impacted functions (like Sales) and tracked diligently. They should be reviewed regularly to ensure they remain relevant, attainable and impactful.

     

    4 Steps to Maximizing Marketing ROI

    Tracking KPIs contributes to a dynamic marketing plan by triggering mid-course corrections and contingency plans as part of a 4 step process:

    1. Set quantifiable objectives.
    2. Ensure objectives are realistic, achievable and relevant to appropriate stakeholders. Marketing activities and spending are both hard costs and opportunity costs. Marketing should communicate to stakeholders the “why’s”, expected outcomes and report on progress. This means you must…
    3. Measure campaign performance. Not just at the end of the campaign, but during its execution. Track variances against your KPIs in real time to minimize surprises and to adjust the activity as required. Create visual tools like a dashboard that is accessible to all stakeholders.
    4. Do post mortems for your marketing initiatives. Identify what worked and what didn’t to learn the causes and effects. Don’t be afraid to admit mistakes, as long as the admission comes with a plan to improve going forward.

    Some say that marketing is an art and not a science. Historically that may have been true, however the long term health and growth of an organization requires that marketing has a positive, measurable impact. The more we monitor the attainment of objectives as we progress, and improve our forecasting of cause (expenditure) to effect (outcome against objective), the more of a science marketing becomes. In this way, marketers are both accountable and credible, and marketing ROI truly becomes king!

     

    This article was published more than 1 year ago. Some information may no longer be current.