It’s budget season, and presuming that you, unlike Congress, have to create, approve, and adhere to your budget, your goal is to spend enough but not too much, maximizing the impact of your marketing spend.
So, how much to spend?
How do you know if you are spending too much or not spending wisely?
Begin with a review of company goals and revenue projections and plan your marketing to achieve them. (AKA you have to spend money to make money.)
A/S ratio
This is also known as an Advertising-to-Sales Ratio, and it is a valuable metric for planning and budgeting purposes. For this metric, advertising includes direct expenditures on media (a print ad, for example) as well as production, creative, promotion, events, and other outreach efforts.
A good rule of thumb is an A/S ratio with advertising equal to
8-10% of projected sales.
Notice “projected” is highlighted. You can’t budget for 10% of prior year sales and expect that budget to produce an increase in sales for the following year.
The A/S will vary widely by age and size of the company, as well as the industry. The following A/S averages by industry from Schonfeld and Associates, Inc. act as a guide; some appear low, probably due to conservative spending in response to the economic conditions of the past few years.
http://www.outburstadvertising.com/resources/adtosales.pdf
The A/S ratio can also be used to track the program throughout the year and to evaluate effectiveness at the end of the year.
CPM
CPM stands for Cost per Thousand (not million) impressions, and it allows you to compare efficiency across different media options. For example, how many people will be reached with a magazine ad versus a
Persuasiveness data from Prosper Insights & Analytics shows general trends over the last few years. Looking at the percentage of people who were influenced by these media, with the most influential first:
- Both cable and broadcast TV are gradually increasing in influence
- Magazines and newspapers are slowly declining (no surprise)
- Radio is steady
- Social media is increasing, but it remains small in absolute numbers
- Outdoor is steady
Note: The CPM standard focuses on impressions, or people who are exposed to the message. It does not measure effectiveness such as gaining and holding people’s attention or achieving sales results. At the planning stage, especially in the absence of good historical information, CPM helps when deciding between various media options.
The CPM metric is sometimes criticized as outdated, but the thinking remains sound. How much does it cost to reach 1000 people with each media alternative?
ROI Analysis
ROI = Profit from the Marketing Effort / Cost of that Marketing Effort
Another measure of effectiveness, often used in hindsight, is this ROI calculation. How much did sales increase as a result of the marketing? What was the net result of profit and expenses related directly to those sales? How does this ROI compare to other company investments?
Friends like these…CAUTION
When considering metrics, realize that most of your Facebook friends “friended” or “liked” your company to get something. According to Social Media Quickstarter, as many as 96% of fans never revisit fan pages once they’ve “liked” them. Similarly, increases in Twitter followers and
Social media is not DIY marketing
I often meet smart, motivated businesspeople who want to “get online and go social.” This conversation is often accompanied by much hand waving as in, “We want to do some Facebook ads and increase our Likes and drive traffic to our LinkedIn page.” You can try to create and manage your own marketing campaign; you can also waste a lot of money doing so.
While social media and social advertising are easy to use and can be quite cost effective, they are also easy ways to waste a lot of money, and a number of digital advertising companies will help you waste your money. A knowledgeable marketer friend estimates that many digital ad recommendations are three to four times the rational spend level. Establish a strategic plan first and then select the media, including social where appropriate.
Professional Services Providers – Don't Believe the DIY Myth
A special note to professional services providers: You trying to manage your own marketing is akin to me managing my own investment portfolio or legal issues.
You need someone who is as much an expert in marketing as you are in your field. You need someone to help you answer the key questions that are relevant for your business and then, drawing on years of experience and current trends, create a plan to achieve success. You need someone who is unbiased.
The best person for this job may not be from your agency. Why? Because they probably have biases. For example, it is not likely that the agency that produces your print ads will recommend less print and more social media because it takes money out of their pockets.
Ready, aim, fire! (correct order this time)
A clear strategic marketing plan prioritizes goals, allocates money to the most effective media choices, and tracks results via metrics. Do more of what works and less, or none, of what doesn’t work. (During your next budget planning cycle, this valuable data will inform your decisions.)
By planning, tracking, and adjusting as needed, you will maximize the efficiency of your marketing spend and avoid spending too much money. Now, if only we could get Congress on board with that thinking.
Do you budget and track your marketing using metrics? For your business and industry, what are the most effective/efficient media options? What have you found to be effective uses of social media and do you track the effectiveness with metrics?
