EPISODE FORTY-ONE:

What's Your Budget; an inside discussion

In this episode, we discuss marketing budgets. Specifically:

• Why agencies ask for a marketing budget

• Why many business owners don't feel comfortable providing one.

• How to determine what your marketing budget should be

 

Outline and Section Markers:

• Confusion & The Importance Of Marketing

• Why 'What's your budget" feels difficult to answer

• Discomfort

• What goes into your marketing budget

• How to determine your marketing budget

• Discomfort continued

• Why do we need a budget from you

• How to determine your marketing budget continued

• The Straight Shot

 

Marketing Budget Calculators at https://reformationproductions.com/budget

 

Notes and Transcripts

Today we are going to answer a question that I received at the agency – How do I determine my marketing budget? But I think I want to open up today with a little fun, we’re going to play our teaser for this episode – while we do that, why don’t you go ahead and hit that like and subscribe there – enjoy the promo

 

Hello straight shooters –

That’s right – we are tackling the big question today – the scary question – MONEY

You know that’s interesting – how so many people are scared to talk about money – it’s a necessary part of owning a business – but you are right, very right

 

You know, I just did a sound off on my own show – for those of you that might not know, I have a weekly social media show called Marketing With The Mrs that I put on Reformation Productions’s facebook and YouTube pages each Wednesday  -  anyways, last week, I talked about this in a different way than we are going to talk about today. But I’ll bring it up just the same

😊

  • I am a member of several small business facebook groups and everytime I see a question on there that is asking for a free or cheap logo – it both confuses and angers me. People seem to understand that they need to invest in a good electrician or a good plumber… or a good mechanic that is going to work on their daughter’s car. But for some reason, that think that marketing is an area they can cut corners in for their business – I don’t get it.
  •  

I think a lot of people are just in denial or maybe just uneducated in their understanding of just how important marketing/business communications is to a business. Seriously, any business book or business course that you take will tell you that marketing is of paramount importance. It can make or break your business. Any successful CEO will tell you. - When you go to apply for a business loan, they are going to ask for your marketing plan – in great detail – because it is paramount to success.

 

It’s one of the three legs of the successful business – remember our episode with Benny StaRomana of the SBDC?

 

Yes, I do. But today we are going to assume that you already know that. That you already know that you have to invest in your business and that marketing is either the #1 or #2 business discipline, to do that, depending on who you ask.

 

What is the other?

Operations – that is the area where you work on the actual delivery of the product or service. Some professors will call it Productions instead of Operations but it’s the same discipline. Marketing is where you

  • tell the world about your business;
  • why they should choose your business, product, or service in the marketplace;
  • the art of creating that influence;
  • how you interact with others;
  • and how you present yourself to the world.

 

Both, are pretty important.

Yes, and depending on the industry you are engaged, in either can be either #1 or #2.

But today, we are going to assume that we, or someone in your history, has made that lesson, that communicating your business is of upmost important, abundantly clear.

 

If you don’t know that, reach out to us and we are happy to talk to you about it. It’s important as a business owner. And I agree “not understanding the importance” is a factor but I think there’s more than that.

 

Well, for whatever the reason, (and I agree there are more than one,) and statistically, ( because this is enough of a problem that someone has studied it) – 50% of all small business, don’t have a marketing plan – and 86% of all the respondents to the study, really want to focus on other business activities – rather than communications or marketing. So preference and focus are more reasons I suppose. Now I agree they should focus on their core business and outsource their marketing to professionals, but they can’t just ignore it… it’s too important.

 

And when it comes to money – I think a lot has to do with not understanding, but it’s not what they do. And beyond that, I think that when business owners are asked for their budget, they find it difficult to answer  - - and for a few reasons:

 

  • If they are a small business – those are private numbers. And they are worried about judgement. Judgment about how much they make or judgement about how little they make. Because a lot of small business owners don’t see the difference between their money, personally, and the business entity’s money. So it’s very personal to them and they keep it very close to the vest. It makes them uncomfortable. Whereas a publicly traded business, it’s all public record, there is less personal attachment. There’s attachment to growth and success, but not as much for the actual numbers.

 

  • Now for the next reason, I’m going to speak to thru my own lens… as a marketing executive. And it’s different with other industries that might ask you for a budget on something but when it comes to asking for a marketing budget, another reason it might be difficult comes from fear – they have a fear of being taken advantage of.

 

  • They think “if I tell them how much money I have, they are going to spend it all” – and when it comes to marketing and your marketing budget - yes sir. That is true. But it shouldn’t be scary. You should know that going in.
  • As a marketing professional, it is my job to instruct you as to the best ways to spend your marketing budget… in ways that will be most effective for the company’s growth & success, and most efficient for the bottom line… .and it’s really hard for me to do that, if we don’t have the budget numbers.
  • But you should know, when you tell me those numbers, I’m going to try to do my best to figure out how to spend it, all. Which is why you need to be absolutely honest with that number. Don’t tell me a budget that you can’t afford… no one will end up happy if you do that. But the more you have to spend, the more you are able to do with it. So don’t tell me a number that is too low either… because that will limit your options. So be honest. Which brings up my next thought on WHY people find it difficult to answer

 

  • Salesmen – people are very leary of sales people and that comes from a long history of commissioned sales people leading their prospects astray in order to make their percentage. Now, at an agency, we don’t have hard costs that are marked up by commissions (for the most part). We work similar to the way a law firm works. By the hour. The cost of our services is completely dependent on how much time it takes to accomplish the work for you plus any hard costs that might be involved. But no commission. Our new business professionals won’t chase you down looking to meet their commission – they are here to help you and to facilitate strategic consultation, creative, and success for your company. They serve – not sell.

 

So if you buy a house the sales person gets a commission,

• If you buy an Engagement ring, the salesperson gets a commission

• If you by a Car- commission

• But working with an Agency- not commission

 

Correct, the only difference is with media buying – media buying has a standard 15% commission that’s been around for years and it’s paid to the agency from the media, not from you as the client… so it’s really more like a referral fee. It would cost you the same either way. Now some media have tried to short cut that, but traditionally, professionally, that’s they way that it works.

 

  • Ok, I have another reason that people are uncomfortable with giving out their budget… just so folks understand why they maybe feeling that way –
  • People in our society are used to everything being transaction based. I give you this amount of money and you give me that item. And because of this conditioning, they look at how much does a bottle of ketchup cost, instead of looking at how much does it cost to feed my family for the year, month or week. But in reality, it’s not about the bottle of ketchup… it’s about the whole of the purpose. And what are the best and most efficient ways to feed your family – or in this case, your business. And I think that’s largely because people don’t know what all goes into that…or not that they don’t know, they KNOW the individual pieces, but they don’t think about it in this way.
  • What all goes into feeding your family?… what all would be part of that budget?… it would be filling the pantry, eating out, snacks, celebratory meals, little Johnny’s school lunches, your alcohol – that may go under entertainment, I’m not sure. But it’s about big picture and planning. You don’t just go into the grocery store and start putting things in your cart, you have to know how much money you have – and that helps you select what your priorities are and what is going to end up going in your cart – marketing strategies are very much the same way.
  •  

Ooh, very nice analogy and you know I love me some analogies. So, in light of that great analogy, let’s talk first about that – what does go INTO a marketing budget. But before weo do that, let’s take a quick break to hear from our sponsors –

 

Ok, welcome back everyone. Before the break, Zachary had given us a great analogy about knowing what goes into feeding your family and setting that budget so, in light of that, we are going to pick up there and start by asking – what does go INTO a marketing budget. Before you set it, you need to know what’s goes in it right?

 

Not necessarily, but I will answer it ….because it sounds easy, but it’s more difficult than you might think, for some – because it’s not a lens that many people look through a lot. But the answer is in the name – Marketing Budget – Marketing – Now Marketing is a synonym for Business Communications – which is communicating your business – so, the answer is – anything that communicates your business.

 

While true, that seems inadequate – or too broad –

Ok, so let’s break it down – what communicates your business?

• Your Brand - so Things related to Brand Development and Maintenance

• Your Logo – so logo design and updates

• Your website – anything having to do with your digital presence online

• Sponsorships – like little league, schools, organizations, events and expos

• Social Media – so that’s creation and curation of content to post, maintenance, and interaction of the platforms,

• Promo items and Swag

• Any Advertising

o I think that one is obvious – so radio spots, print ads, tv ads, theater advertising, billboards, postering, digital ads, podcasts…

 

All of these are “obvious” because they are external marketing but there is also Internal marketing. That’s things like:

• Recruitment or employer brand development and help wanted ads

• HR related items like employee orientation videos, safety videos and posters, classes, thing related to training and passing on internal information like newsletters and intranets.

• The investors reports and conferences.

• Anything where the business is communicating to internally – to employees, management, investors, etc.

 

You used to work specifically within that niche didn’t you?

I did, I worked for a marketing agency that was focused on HR related and internal marketing – often it has its own budget that falls under the HR director’s control but with smaller companies, it’s all the marketing budget under the business owner or CEO’s management.

 

But there are also other areas, that definitely, seem to overlap with the other major disciplines (operations and administrative) in their use, and that can get confusing to some.  And I have a list here… because it’s long - Things like:

• Employee Uniforms,

• Grocery or Retail Bags, and Boxes, and whatnot

• Office Signage and Décor,

• Delivery vehicles

• Shipping boxes

• Invoices and packing slips

• Stationary

• the voice message on your telephone system,

• the signature in your company emails,

• the fonts used throughout any electronic or print communications,

• the look and feel of your lobby area including the items you have on display

• Store layout and design if that’s relative to your business or restaurant

 

And then there is the consultation and creative production for putting it all together – this comes from working with the marketing agency and includes.

• Strategic development

• Brand development, management, maintenance, and upkeep

• Ongoing consultation

• Vendor research

• Tool creation

• Media buying

• And various other duties

 

So, it’s a lot – Regis McKenna says “everything is marketing” – and he’s right. Everything that communicates to others… is relative to the marketing function for a business.

You starting to see why marketing is such a priority? why it can’t be overlooked?… if you overlook it, you are overlooking a huge part of having a business.

 

It’s also very impactful… proper use of marketing can influence people to choose to do business with you. Improper marketing processes and “bad marketing” can drive people away and tank your business.

 

But I think understanding what all goes into the budget, helps folks to understand it’s importance and why it’s such a large percentage of running your business.

 

And it is, it’s not as big as operations, from a cost perspective, in most cases, but it isn’t small… It shouldn’t be small. It has a lot of responsibility for the company’s success.

 

Ok, so… regarding setting that marketing budget -  I’ll tell you the guidelines that you’d learn in Business school first and then I’ll break down how it’s actually done. The rule is:

• 12-20% of your gross income should be dedicated to your marketing budget

• 8-12% if you are an established, legacy business that is simply maintaining instead of growing their business.

 

Now, those are the general rules that have been passed down from Yale or Harvard or whoever… it’s what everyone learns in business school. It may be based on the known success of Coca-cola, by their commitment to keeping a strict 20% marketing budget and growing so very successful with it. And for the most part, it works great. But there are some businesses NOW that use different percentages. DotComs for example – lower overhead add less staff mean that the operations percentages are lower and the marketing percentages are higher.

 

We can put some examples of Dotcoms up on the screen – I think we discussed some of them in the building the foundations episode of the Small Business Start Up series that we did.

 

Start-ups should be spending 20-30%, in a more aggressive strategy for the first few years. Particularly if they don’t have their foundation built yet.

 

Now sometimes these percentages can freak folks out. But remember that more than 50% of your business is:

• communication of who you are

• communication of what you have to offer

• communication of why someone should choose your business in the marketplace

• communication and presentation of  the products/services that you provide

Communication is a LARGE part of owning a business

 

All true, but just the same, people will run from that percentage. I’ve seen several back-up tactics and methods over the years.

• One is when the business owner telling me what they need… insistently if I have led them in a different or varied direction. Usually this is because they are thinking that I have increased things somewhere unnecessarily or because they are trying to oversimplify what it takes to accomplish what they need.  Both are of the wrong mindset though - You see, businesses contract me to tell them what they need… what they can do for a certain budget…. But if they try to tell ME what they need… it’s often comes out of fear …or they are trying to negotiate. I’ve very clear, we are not a vendor or a retail store where you just come in and buy stuff. Our services are partner focused… we work WITH our clients to ensure they are successful… we don’t simply take orders like a store.

 

• But, at the same time, businesses do, and fairly often, they come to me with something they are interested in or want to consider for communicating their business. But when they do that, it’s often for other reasons.

 

o they have seen our work and know that we can do a good job for them creatively, or tactically-  depending on the solution or

 

o or they in trying to promote and grow their business, they are suggesting a place to start. In which case, I take that suggestion in high regard, and make prioritized recommendations that fit within their budget.

 

And I’m ok with either of those but out of respect for the business community and honoring my position in the industry, I always do my due diligence in providing guidance and advice in addition to great creative.

 

Awesome stuff, good job – nice looking out for the clients and all – but … um, on topic? How’s that tie in with budget.

 

Well, when people don’t want to or refuse to provide me with their budget – it makes my job very difficult. You see there are some things that business owners need to understand about being on this side of the table - - you, mr business owner, will never do “all the marketing” – - there are simply too many strategic options, too many marketing tools available for you to do “everything.” And that budget, is necessary to define the room. With a budget, we have parameters that we can then narrow down the options with, and select what is best – most effective and most efficient – in the business’s unique situation…and all businesses are unique. Budgets aren’t about determining profit, they are about setting boundaries. But to understand that, you have to trust your marketing consultant. Because, like I said, nothing is “off the shelf” – every strategy, every tool is designed specifically to the client’s brand, goals, and needs to work specifically for them and their targeted customers.

 

So, how do you show that you are trustworthy to a prospective client?

Well, I am trustworthy… it’s in my making… and I hope others can see it.

Yeah, but how do you show it?

Well, I share with them my knowledge, experience, and understanding regarding how marketing works strategically. I guess I try to showcase my character and the value of working with me-  but in the end, Trust has to be given. It’s like forgiveness… you can prove yourself trustworthy but you can’t earn trust…. That got deep – lol – that could open up a whole ‘n’ other philosophical discussion.

 

Well assuming you have their trust, and in reality I guess, they have to trust someone in order to gain the expertise, dedicated skills and experience necessary for this type of work in order to grow their business in the most effective and efficient way – without wasted time or money – but, either way, you or whomever they decide to trust – how do they determine their marketing budget – that was the question presented to us that started this deeper conversation on marketing budgets – How do they determine their budget?

 

Well your accountant should be able to tell you what your gross income is so that you can use the Business 101 percentage formula but, though that is the most accepted, there are also several other methodologies and formulas that are used to help business owners and department heads to determine their budgets.

 

But rather than go through all the math, we have provided several calculators on our agency website – Just go to reformationproductions.com/budget. We will put a link to them on Straight Shot.net as well. There are 3 calculators there, each using a different methodology or formula that is commonly used for company’s determining their marketing budget. We have one that is

1. Age/Income Based

a. That takes into account how long you have been in business; what you attitude, disposition, and desire is in regard to growth; and your gross revenue.

 

2. Goal Based

a. This is an alternative method that requires more data to use… it requires things like revenue goals, value per conversion rates, industry conversion rates, costs per lead, etc.

 

3. Range Computation Model

a. This formula takes into account profit margins, hard costs, and cost of occupancy in an effort to provide a high and low end to your budget range.

 

Why do you have some many different options there?

Well, because people like choice and they have preferences -  and I don’t really care where your budget comes from – I don’t even care how much it is – but I need it, order to develop a strategy for you as a business. It’s keeps me from wasting time with options you can’t afford and from not providing enough for your business when you could afford to do more.

 

Now, I can tell when your budget is too low… but even in those cases, maybe you are just starting out and are having difficulty – I still want to help you. But in those cases, it’s simply going to take you longer to accomplish the things that you may need to accomplish in order to truly thrive in the marketplace… but something, is better than not doing anything… and doing SOME homework is better than going out there blind and making a mess of your possibilities. So I try to work with any budget… we can always to something to better your position.

 

Now, none of these budgets are perfect but all of them give you a starting point… and then as your business grows more successful you can begin to increase your annual budgets to expand your options and the reach of your brand. That’s one of the reasons that these formulas are percentage based… so that they grow as your company grows.

 

Ok, so there you go – lot’s of talk about budgets and money today – always an uncomfortable conversation for folks. So Zachary, what do you have for today’s Straight Shot?

 

Well, I don’t think it has to be uncomfortable – so let’s just start there – it doesn’t need to be uncomfortable – but it needs to be honest. You have to be honest with yourself and you have to be honest with your agency about what you can and can not afford. We’ll do our part to delivery everything that we can within that budget… and you do your part Mr Business Owner to honor that and keep your payments up to fuel the budget. Deal?

Sounds like a deal

 

Now, other than that – to the point that you made at the beginning of the show – Guys – know the value of what you are buying and stop insulting creatives and other marketing professionals. You wouldn’t expect Steven Spielberg to come shoot your home movie for free.. because he’s a professional at his craft and your value what he does the same as you want people to value whatever you do?

 

Now, that being said, let me tell you what you are paying for.. what went into that marketing professional being able to do this as a career:

o Years of training and developing the necessary skills to provide you with what you need in as good as quality as possible, in as quick a time frame as possible, with as much care as possible. So you are getting quality, speed, and heart.

o You are also getting their experiences – they’ve seen what works and doesn’t work – they’ve made their mistakes – they’ve seen more of the available options and alternatives than someone that doesn’t do this professionally - and that experience is very, very valuable. And you know experience is valuable… that’s why you want the Captain of the airplane you are on, to be experienced and not green. Less likely to damage something important – like you or your children or in our case, your business.

 

You have options – you don’t HAVE to work with them and they don’t have to work for you – but isn’t it nice when everyone works together for the same goal… and businesses start to soar.

 

Ooh, that’s nice… nice note to end on. So guys, use the tools that have been provided to determine your budget if you need to…. Now you understand what it is important that you provide it.

 

The other thing that is important is that you Like this podcast episode – like wherever you are at, do a review, hit subscribe, smash the notifications bell. More good conversations like this coming up on our next episode and always. Now if you’d like to suggest a topic or have a question for us, shoot us at email at info@straightshot.net or call us at 678.825.8086 x 300. But seriously, like us on social media, subscribe wherever you enjoy podcasts or on youtube – it really helps us out.

Ok, until next time - Bye

 

Category Straight Shot Marketing Podcast

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