How To Allocate Your Marketing Budget

I contend that what will separate the marketing winners from the losers will not be those who master “digital marketing” or “social media”, but those that find the optimal allocation of their marketing budgets. Allocation across channels, allocation across objectives, and allocation across the consumer purchase lifecycle.

So it was with great interest that I read an article on CUES’ site called PR Insight: Budgeting for Sales, Marketing and Public Relations: What are the magic numbers? (h/t to The Financial Brand).  The author of the article — an executive at a PR agency — recommends that credit unions allocate their marketing budgets along the following lines:

22-28% Public Relations

20-25% Direct Marketing

12-15% Events

10-12% Digital Marketing

8-10% Sales Collateral

6-10% Advertising

3-4%  Marketing Automation”

Where did these numbers come from? According to the author, “IDC conducted a study of more than 100 companies to determine typical ratios for marketing programs. The IDC study provides useful benchmarks for larger companies. Our agency has examined the IDC numbers and projected the ideal budget for small- to medium-sized financial institutions.”

The author also states that “a good starting benchmark is 25 to 30% of revenues devoted to sales and marketing, with sales receiving two-thirds of this budget and marketing one-third.”

My take: A PR exec recommends that the largest portion of the marketing budget should be allocated to PR: What a surprise! Not to seem disrespectful to the author of the article, but these allocations are simply ridiculous. I don’t have a representative sample of how banks and credit unions allocate their marketing budgets, but the ones I’m familiar with put no where near 25% of their budget in PR — nor should they.

We could argue all day about what the right allocation should be — but it would be a fruitless discussion. First of all, because the buckets defined in the article aren’t mutually exclusive nor comprehensive. Case in point: Is digital marketing the same as banner advertising? And isn’t banner advertising part of advertising which is a different bucket? Does direct marketing include email marketing or is that part of digital marketing?

But the overarching reason why the argument would be useless is that there is no one right answer: A firm’s allocation is wholly dependent on its marketing strategy and objectives.

A credit union (or any other firm) needs to decide — at some level — how to balance customer acquisition versus up-sell/cross-sell. It needs to make some kind of judgement on how to allocate its budget across initiatives that span the customer lifecycle — from awareness to consideration to preference to purchase. PR, events, direct marketing, etc. provide better support to different parts of this lifecycle than others.

Whatever your firm’s objectives, though, I find it extremely hard to believe that allocating 25% of your marketing budget to PR can be justified. If you’re a credit union with a $10 million marketing budget, are you really going to put $2.5 million in PR? Good luck to you. Send me your resume, I’ll see what I can do about helping you find your next job.

Which isn’t to say that I think that nothing should be allocated to PR. I’ve worked with good PR firms that deliver on what they promise. But there was no way put 25% of our $50 million budget into PR. Not even 2.5%.

Another thing about the article that pokes a stick in my eye is the use of the word benchmark. If you take 100 firms, count up what they spend, and divide by 100, what you get is called an average. Not a benchmark.  Dictionary.com defines benchmark as  “a standard of excellence, achievement, etc., against which similar things must be measured or judged.”

But here’s the dilemma: If you’ve been allocating your marketing dollars as prescribed in the article, then it seems to me that you haven’t invested in the marketing measurement capabilities needed to measure the return on your marketing investment in each of those areas.

So how in the world are you going to determine how you change the allocation of your marketing budget and justify those adjustments?

I have a proposal.

It’s likely that you’re working with different firms to provide each of the various components of the marketing mix: A PR firm, an ad agency, a direct marketing firm, a technology firm, etc.

My idea is this: Jell-o wrestling.

Put them all in the jell-o mix. The first one thrown out gets 5% of the budget. The second, third, and fourth to be tossed out of the ring get 10%. Fifth and sixth get 20%. The winner gets 25%.

At least you’ll some sort of rationale for why you allocated your marketing budget the way you did.

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6 thoughts on “How To Allocate Your Marketing Budget

  1. Pingback: Tweets that mention How To Allocate Your Marketing Budget « Marketing Tea Party by Ron Shevlin -- Topsy.com

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  3. Instead of, or perhaps at the same time as Jello Wrestling, why not use Jello Shots? People have to present their ideas for use of the marketing budget. Each time one of the named buzz-words is used everyone takes a Jello Shot. Then, to your method, first person down gets 5%, etc. until there’s only one person standing.

  4. 25-28% is nothing… if you hire me, you’re looking at more like 50 – 75% of your budget being spent on PR with my salary alone… Worth every penny ;-)

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