By Josh Dreller
What are the keys to getting it right?
How not to do it!
Firstly, it is worth highlighting an approach that’s quick, easy and painless – and probably very tempting to use – but definitely not the right methodology for effective budget planning. It goes something like this; when the budget planning cycle comes around every year, all you do is copy and paste the current year’s plan (as you’ve done for the past five years), increase all budgets by X%, and click the SEND button. Done.
The wiser and more meaningful approach is to take some time out of the day-to-day responsibilities and devote serious attention to this important task. Review and consider what worked and didn’t work in the current year before making your decisions. Look at the current industry trends which might impact the marketing plan, analyse new opportunities that have arisen and have discussions with colleagues about internal influences on the media plan and the overall the strategic direction the business is taking. This might sound like a whole lot of work, but in your heart of hearts you know it’s what is required for effective budget planning.
Two key factors
The two most important factors in budget planning are goal-setting and forecasting.
Goal-setting involves identifying the results you want to achieve with your marketing budget. Ideally you should be aiming to come up with a solid set of prioritised goals, along with a clear understanding of how you and your business will measure success against the goals.
It goes without saying that the main goal for any company is generating the highest monetary return. But there are usually many ways to achieve that. Should the marketing plan be about encouraging greater product trial and adoption for instance? Or should there big a big focus on creating positive sentiment around the brand? Or is improving customer service to build loyalty the way to go?
A recent Forrester Consulting study¹ highlighted some of the most frequently quoted goals from US marketing and sales decision makers. Examples include ‘Increase new customer acquisition’; ‘Increase customer lifetime value and loyalty’; ‘Grow long-term relationships with customers’; and ‘Rapidly innovate to meet changing customer needs’.
Of course the different teams in your organisation – product management, sales, and customer service – will all have a different perspective on what the most important focus areas and goals in the plan and budget should be. And the CEO will typically want to have it all!
Don’t spread the budget too thinly
As a marketer, it’s important that you don’t get pulled in too many directions and spread the budget on too many activities. Otherwise, you won’t drive enough results to meet any of the agreed goals. As a best practice, marketers should lean towards a few balanced core goals that are realistic and attainable.
Once the key goal-setting exercise has been completed, you need to make decisions on the various opportunities and tactics that will help achieve the set goals – and here’s where forecasting plays a major role. During the planning process, you will typically face a variety of different options and opportunities. Accurate forecasting can help you decide which way to go and help you explain and justify your final decisions to the business.
If you are able to forecast accurately, making budget choices should be straightforward. A good starting point is to use recent, historical data on which to build your forecasts. Year-on-year (YoY) data could work, but in digital marketing – which is so dynamic – what happened a year or two ago might no longer be relevant. You have to deeply understand the data on hand in order to know how to use it properly.
Forecasting commonly used marketing channels should be fairly easy. In fact, most experienced marketers can reel off average metrics on the return-on-investment (ROI) and cost-per-acquisition (CPA) of their often used channels and tactics.
For new opportunities, try using third-party benchmarking data (which is one of the main reasons why marketers subscribe to this kind of research). Or you can estimate the return by comparing it to other, similar media types with a bit of experience and ‘gut feel’ thrown in to weight it up or down. This is where a bit of an art and science is required when forecasting, especially when you are unfamiliar with how a particular marketing channel will perform.
Balancing the mix of tactics
While forecasting can help you manage expectations and have a good idea of what the marketing plan and budget is going to deliver, there should be some room for a balanced mix of tactics – some tried and tested activities that you know will deliver – along with some experimentation and more uncertain activities. In this respect, some marketers have adopted the 70/20/10 Rule as a good starting point for their final marketing budget blueprint. This goes as follows:
• 70% of the budget should be dedicated to what has historically worked and should continue to work. The bulk of the budget should go to what you know can drive a return.
• 20% of the budget is set on newer channels and innovations that seem like good things to be doing, even if they haven’t completely proven themselves yet. Maybe you’ve experimented with a new ad format and are ready to spend some serious cash to really see how it can perform.
• 10% of the budget is experimental and used on the most cutting-edge, unique opportunities that might have a big payoff. Even if it fails, there’s value in trying new things and gaining experience on why something didn’t work.
Not just an annual process
It is worth reiterating here that, although this summary of budget planning describes it as an annual process, there are many aspects of the marketing budget that require ongoing weekly or even daily attention.
For example, while top-line budgets are usually set annually, channels such as high-volume, automated buying (i.e. paid search or paid social advertising) are areas where marketers need to continuously analyse performance and reallocate spend. These channels have fluctuating landscapes with competitors continuously making changes to their campaigns which can affect results across that sector. You need to be constantly reviewing and reallocating to ensure the best performance.
Budget planning is a complex area with many considerations coming into play. As a marketer, you need to start early and give yourself time to analyse and plan the process that will lead you to the creation of a well-rounded budget with specific goals. For more information on this area, check out The Kenshoo Guide To Budget Planning for Digital Marketers .
¹ Source: Forrester Consulting, “Marketing’s Big Leap Forward” commissioned by StrongView, Feb 5, 2014, eMarketer
About the author
Josh Dreller is Director Marketing Research and Content at Kenshoo, the Sole Leader in Search Bid Management Software and Social Ad Platforms per evaluations by Forrester Research, Inc. In his role, Josh sifts through massive data sets across search, social, and online advertising to uncover trends and best practices.
Josh is a long-time member of the Standards Committee for the Digital Analytics Association, which works to provide standard definitions and promote consistency of the most widely used terms across the analytics industry.
Prior to Kenshoo, Josh spent many years working on digital marketing in various positions at Fuor Digital, Visual IQ, and Resolution Media.