Why Smart Business Leaders Are Rethinking Their Communications and Marketing Budgets

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Why Smart Business Leaders Are Rethinking Their Communications and Marketing Budgets

As one fiscal year ends and another begins, we turn our collective attention to that thrilling operational exercise known as budget planning.

Whether it’s your first or tenth time planning a communications and marketing budget, you will likely have tons of questions on how to supercharge your outcomes in the upcoming year, like…

How much are we spending compared to our competitors?

What should we allocate for each channel?

Should we shake up our media mix?

Communications and Marketing Budget: How Much Do We Need?

First, we must answer the big question: How much of our organization’s operating budget should be spent on communications and marketing services?

According to the latest CMO Survey, on average, 11 percent of an organization’s total operating budget, or 7.5 percent of total revenue, is spent on marketing.

That overarching figure has trended slightly upward since 2012 (6 percent) and greatly differs by industry.

While nearly one-fourth of consumer packaged goods (CPG) companies’ operating budgets go toward marketing (24 percent), the majority of companies spend anywhere from 8 percent to 15 percent on marketing services.

Companies on the higher end of that range focus more on reaching general consumers while those on the lower end typically focus on B2B targets in high-compliance industries. This includes healthcare, pharmaceuticals, finance, insurance, transportation, and manufacturing.

Energy companies round out the list by spending only 4 percent of their operating budgets on marketing services.

Wanting to Grow Your Company? You May Need a Bigger Budget.

You will also want to take your organization’s growth expectations and customer retention rate into account when planning the size of your communications and marketing budget.

Organizations that want to speedily scale should allocate roughly 20 to 35 percent of their operating budget toward communications and marketing.

This ranges from small startups establishing initial profitability to older enterprises aiming to expand across regions or product categories

This increased budget will allow you to test various mediums, services, and channels. Once you have identified what works and what doesn’t, you can reallocate and scale your budget to focus on the most successful strategies and tactics.

Communications & Marketing Go Hand-in-Hand

Earned, owned, and paid media have evolved to constantly intersect.

By splitting these up into separate budgets, companies may inadvertently miss out on promotional opportunities that teeter on the edge or cross between the two disciplines.

Because of this, we typically recommend combining corporate communications and marketing into a single budget.

So… what expenses should you include in your communications and marketing budget?

Advertising Placement

Most organizations will first and foremost include direct expenses of advertising placements in the marketing budget. If placed through an agency, this will also include a modest commission for placement. The standard industry rate for agency placement is 15 percent, but that may differ by budget and expected workload.

Social Media and Data/Analytics

Several categories of newer expenses, like social media and data/analytics, have been tossed back and forth between budgets for communications and marketing, technology, sales, and operations. This occurs often with software suites, which may include marketing, customer relationship management, pipeline tracking, and data monitoring tools.

According to the CMO Survey, less than half of companies include employee expenses (e.g., salaries and benefits) in their marketing budget. Most allocate salaries as general/admin expenses or sales expenses.

In general, the easiest way to identify the optimal placement for these expenses is to take a step back and look at what your organization is trying to achieve with that expense:

    Using that vendor to generate new sales leads? Put them in the communications and marketing budget.
    Using that software suite to track movement through the sales pipeline? Put it in the sales budget5.

A New Home For Research & Analytics

We are steadily seeing more clients add marketing research and analytics into their communications and marketing budget.

While these previously may have fallen under R&D or operations, it makes sense to put marketing research and analytics expenses under communications and marketing as they are essential mechanisms in the development and planning of brand strategy and campaign tactics.

Today’s most successful organizations use data and analytics to measure return on media expenses and leverage these insights to fuel future marketing decisions.

Want to scale your marketing efforts and derive greater value? Think of communication and marketing services as a revenue driver, rather than a sunk cost. This will help you to see the quantitative benefit of those services.

What Channels Should You Focus On?

Leading organizations are reexamining their marketing mix and reallocating larger portions of the overall budget toward newer channels.

According to a recent Econsultancy/Adobe survey, top growth areas include social media marketing, content marketing, and video advertising.

Many companies see significant opportunities in personalization and optimizing the customer experience to increase the relevance of messaging and content.

On the other hand, mediums experiencing budget decreases include print advertising, direct mail, display advertising, and webinars.

In order to succeed in the age of personalization, organizations must create more high-quality content than ever before. This is leading many to leverage relationships with strategic communication firms for the planning, design, and production of creative content that drives results.

Expect to see even more shuffling of the marketing mix in the years ahead as new mediums and channels continue to find their way into our daily lives. Look out for innovative opportunities that focus on augmented reality, the Internet of Things, peer-to-peer messaging (P2P), wearables, and virtual reality channels.

What else are you considering when planning your communications and marketing budget?

Need budget planning help? Shoot us an email. We’d be glad to provide personalized guidance on managing the communications and marketing budget planning process.

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