Darya Niebuhr
Darya Niebuhr
Marketing budgets have been fluctuating over the past few years given the global pandemic, vast shifts and changes in various industries and the economical rollercoaster with now mid-2022 facing a full-blown recession.
While allocating marketing budgets has never been a trivial task - it has become more complex given the economic uncertainties and changes in the technical marketing landscape. Yes, I’m referring to the tracking armageddon that gives more privacy to consumers and forces marketers to rethink their data and targeting approach before a cookie-less world becomes reality.
With all this up and down in the marketing landscape for sure you will appreciate some clear direction on what to do. Keep on reading and learn which 5 steps to follow to make the most of your budget in the current times.
Why Allocating Marketing Budgets Is Far from Trivial
While your goal certainly is to increase overall revenue or ROI - you actually need to allocate budgets across different channels to achieve that. And the revenue and ROI coming from those channels will naturally vary over time depending on your campaigns, targeting pools, competitors, and many more factors.
Obviously, you should not overspend your marketing budget. But have you thought about the damage it may cause to your business if you underspend and leave the potential unused or even worse - let it be harnessed by your competitors?
The major challenge is to strike the right balance between not overspending and not underspending either. But how to get it right without the guesswork?
For sure you’ve heard about certain rules of spending x% here and y% there. Maybe you even have been reading the “State of Marketing Budgets 2022” Report by Gartner - where you can look up industry benchmarks and read on statistics and trends such as 60% go into Brand and 40% go into Performance channels.
However, there are too many factors that go into each business such as industry, company goals, strategy, competitive landscape, cost structure, profit margins, etc - so a one fits all approach or any advice such as 60/40, etc will most certainly not serve your specific needs.
This calls for a constant recalibration of your initial allocation on the go. When you miss to do so - you definitely risk your competitors to take over.
How The Inflation Affects Marketing Budgets in 2022
Before we share what to do to get your specific budget spend right, let’s first look at how the current economic situation is affecting marketing spends.
Inflation certainly has a twofold negative impact on revenue generated with marketing. Just think of it this way - if the consumer gets less product for the same money, you need to work harder on making them choose your product over your competitor’s. Further, given the inflation, you will get less ad impressions bought even if your budgets would remain flat.
For these two reasons, it is incredibly important to confidently answer the question of which channels and campaigns work best for you and consequently where to put your (shrinking) budget to meet your revenue goals.
Know Where Your Revenue Really Comes from
Knowing which campaigns and channels work for you is a matter of correct and data-driven measurement of your activities. With tracking challenges forcing marketers to restructure how they approach data, it has never been more important anyway. If you’re simply allocating your resources by looking at the overall revenue only - you’re most probably set up for failing your ROAS. And if - even worse - you simply rely on what google analytics tells you to do based on last-click then you definitely should take care of your measurement setup. You can read why here in more detail.
This importance of correct measurement and analytics in marketing is perceived by CMOs as a clear necessity - with a rather large capability gap (26% Top 3 Rank in Gartner Report) between what is needed and what is met.
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Source: Gartner Webinar on the CMO Spend Survey 2022 | Slide 55
This is a huge opportunity to take on right now - the earlier you start, the more you can learn and tweak and make sure your measurement setup works in your favor.
5 Steps for Optimal Budget Allocation
How to allocate Budgets to the right channels creating a unique marketing mix that will help your business to maximize its profit? And where to even start?
We suggest following these 5 Steps to make sure you spend your marketing budget in the best possible way, both given the current economic challenges and future tracking regulations.
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Set budgets based on goals not benchmarks
While it’s important to keep an eye on what your competitors do and how your industry develops overall we highly recommend not to set your budget based on benchmarks and averages. Do consider your specific business strategy - be it growth, retention, brand building, or other strategic direction - and work out your budget based on your goals. To do this you should work backward from your revenue goal and calculate the spend required to meet these goals given your specific acquisition cost. -
Calculate for each channel
Next, you should decide on a mix of different channels. Use the same method for assessing the potential each channel has by making the same backward calculation but on channel level. If you have not yet been operating in a channel, this is where it actually makes sense to look at industry benchmarks to see what cost range is realistic to kick off initial planning. -
Reserve testing budget
Once you’ve split your budget across the channels which are already working for you, don’t forget to set aside a portion of the budget you feel comfortable with “burning”. You will need this to test ad copies and creatives in the different channels. What first feels like a risky thing to do is actually a more secure option to go for. It saves you budget in the long run because you don’t throw a bigger portion of your budget on something you don’t know would work out. Instead, you test it with smaller budget and set up for scale only what works. -
Evaluate channels correctly with data-driven attribution
Once your budgets are allocated across different channels you need to evaluate whether they really are working in your favor. To do so you should set up a data-driven measurement setup that will give you both - an exact report on the contribution of each channel to overall sales and an independent view on those channels. Since platforms have a tendency to always report in their favor, the reports you find there are simply incorrect and do nothing for you to evaluate the true performance of your activities. -
Reallocate budget regularly
Once you allocated the initial budget split into your marketing mix and made sure you attribute the resulting conversions correctly now comes the fun part! And actually, the part which requires a fair share of flexibility from you. The only way to get the most out of your budget is to adapt as quickly as possible to changes in channels and acquisition costs. When you allocate your budgets once a quarter and leave it at that, this gives your competitors a whole 3 months of time to make better spending decisions than you. Observe your budget spend and results using a projection. This helps calculate how much you’ve spent, what you’ve got from it so far, and when you see the performance of a channel drop it’s a clear indication to shift your initial budget to a channel with better results.
Conclusion on What to Do with Your Marketing Budget
Marketing budget allocation has never been easy - however, it has probably never been more important to carefully monitor, either. Given current economics with inflation rolling and further challenges with tracking and targeting we can expect marketing budgets to further decrease, or at least buy you fewer impressions even if they remain flat.
These uncertainties are heavy to face for marketers - we will not try to disguise that. What we would like to call out though, is that there has never been a better time to take good care of your measurement setup, make sure you review correct results, and stay on your toes with budget adjustments.
Allocate and then keep reallocating your marketing budget! Make sure you measure the results correctly - because otherwise, all your budget shifts remain suboptimal.
See how data-driven attribution helps allocate budgets for your business! Book a free call with one of our experts.