Marketing budgets are a tricky area for any business, but particularly for a mid sized firm that has a unique position of not being as resource constrained as the majority of SME businesses, but not yet at the size and scale of large enterprises where spend is so significant as to command the attention of any vendor in the marketplace.
For a typical SME, marketing budgeting is a matter of wringing the absolute most out of every pound and hoping that will be enough. Cheapest is pretty much always best in this world, where “good enough” is…well…good enough. As businesses cross the threshold of £1 million revenue, they start to have to behave differently. The old mentality of boot strapping every aspect of marketing erodes in favour of more careful consideration about which areas merit extra investment and which marketing suppliers are no longer on par with where the brand is now.
In this article, we’ll share some thoughts on how much to spend, when, where and who with, all through the lens of the mid sized company.
1: How much to spend
The standard rule of thumb has always been that marketing budget should be 10% of turnover. Whilst it’s comforting to have a standard number to lean on, we’ve seen that this means many firms undersell themselves and experience slower growth as a result.
The 10% rule was evolved in “ye old days” when the vast majority of firms were selling physical goods or standard services requiring a people cost proportionate to turnover. If this is your business then great, the rule will probably still hold true more or less, however if your business is in the digital economy this is no longer the case. For example, a hit app has to plough a huge proportion of its turnover into marketing (sometimes as much as 50%) to achieve the maximum possible profit over its lifespan.
The other factor to consider is who your competition are. If you’re a relatively big player, up against a lot of cheaper, more agile SMEs then you want to keep your marketing budget lean. 5-8% of your turnover will keep your overhead down and is still enough to outgun your competitors. Even though you’ll sell on value not price, you need to keep costs down to keep your rates in the same ballpark, so as not to spook the horses.
Conversely if you’re a mid sized company that’s comparatively tiny compared with your big league competitors, you need to consider investing more than average so you can punch above your weight and demonstrate that you have the resources to support your business (and by implication your customers’).
2: When to spend it
Another classic “rule” was to divide your marketing budget by 12 to give yourself a monthly spend. This is also a bit of a bum steer in our opinion, as it assumes that you’ll have the same need for marketing in January that you will in August, which for the vast majority of firms just isn’t true.
You want to map your marketing spend to your sales curve, taking into account your sales cycle length. So, if it takes on average 3 months to close a sale and the majority of your business is done in May, you’ll want to spend most in January and February to generate the most possible leads for that key selling time.
3: What to spend it on
As a smaller SME, your decision making is relatively simple. You go heavy on digital because that’s what you can afford and when you look to reinvest, you can (hopefully) look at what worked and what didn’t and just do more of what worked. Simples.
When you get bigger and your budgets get more generous, doing more of what worked won’t necessarily be enough to account for your full budget, or guarantee the best possible return. You need to decide what to try that’s new to your business. How? We have two approaches, firstly looking for things that are similar to your most successful activities. So if you’ve done well with guest blogging, look at other forms of content syndication and promotion.
The second way is to go back to your buyer personas and look at your marketing funnel and that of your competitors through their eyes, to see if you can spot any areas for improvement that might not immediately show up in the numbers. Just because an area of your marketing isn’t visibly under-performing, it doesn’t mean there’s not unrealised potential there for you to exploit.
4: Who to spend it with
Once you’ve figured out how much you’re spending, when and on what, it’s time to select the partners who’ll help you do it. The first step here is to perform an honest assessment of your in-house capabilities. Many businesses don’t do this or they don’t do it annually. The reason to repeat the exercise is to keep tabs on personnel changes and training changes that will affect the result. Maybe Rachael used to do all the graphic design but she left last month and her replacement doesn’t have the same skill set. Or Justin did his Google Ads certification this year, so he can run those campaigns for you in-house.
Once you’ve figured out what you’ve got covered in-house, it’s time to start looking for partners who can cover the gaps for you. Check out our view on how to decide between different types of supplier. An additional tip is to look at where you sit in the client pecking order for a particular vendor. You don’t want to be one of their smallest accounts, no matter how wowed you are by the glamour of their credentials because you’ll not receive the attention you deserve. Similarly, you don’t want to choose a business with limited experience serving organisations as large as yours, because their processes are likely to be very rigid and defined around a much smaller client/requirement.
We hope this has been useful, if you’d like a free no obligation review of your approach to marketing budgeting or anything else that you’d like a second opinion on, please do get in touch.