How to Justify Your Marketing Budget to Management

Even in the best of times, getting approval for your marketing budget can be a difficult task, particularly if yours is a complex sale and tracking direct attribution is fuzzy.

Even in the best of times, getting approval for your marketing budget can be a difficult task, particularly if yours is a complex sale and tracking direct attribution is fuzzy.

You’ll likely find the path easier if you lay out your plans to include a set of key metrics and parameters that define success.

What Is the Opportunity?

Begin the conversation by outlining the opportunity you see available to your organization and identifying what happens when you win that opportunity. Do you increase market share? Improve profitability? Bump up customer satisfaction?

The opportunity better be based on a business metric improvement. You’re not likely to get far with a discussion of improved process metrics: more subscribers, likes, followers, etc. That said, it is worth tracking these things so that in the future you can point to them and draw a connection between improved engagement and increases in hard-dollar metrics.

You may also consider a defensive positioning — “if we don’t do this, our competitors will.” Or, “our competitors are already doing this, and we’re falling behind.” I’d be careful with this route, though, as it often leads to defensive thinking. And that leads to marketing resources spent to maintain the status quo. Sometimes that’s the smart path, but it’s not necessarily a popular one.

What Are the Opportunity Costs?

Corporate budgets are generally a zero-sum game. If you spend the money here, that money isn’t being spent somewhere else. You need to demonstrate an awareness of that and be prepared to discuss how and why the investment you are requesting will outproduce the one it is replacing.

How Long Will It Take?

Not all marketing activities are created equal. They have different payoff expectations. (Writing a blog post today won’t likely get you a new customer tomorrow. Launching a new PPC campaign just might.)

Be ready to discuss whether your marketing budget proposal is a short-, medium-, or long-term play and why anything that will take longer than this quarter to realize goals is worth the time risk involved. (Your organization’s culture will influence how important this question is, and perhaps even if recommending a long-term plan is an option.)

What Will It Cost?

This might be the first question out of a manager’s mouth regarding the marketing spend on a specific project, but I wouldn’t address it first if I could avoid it. Better to establish value and expected (positive) outcomes first. Then get into what the total cost will be, whether costs are front-end loaded or more evenly spread out, and whether some portion of your costs are accrued only when progress is being made. The more detail you can provide — particularly details that mitigate risk — the better.

How Can It Be Tweaked?

If it’s not working, what can you change? If it’s working, can it be improved upon? These are critical questions not only to be able to answer, but to get your management team to think about. Why? Because the condition on day one of your new initiative are not going to change, perhaps radically, by day 90.

If you can show that you’re prepared to make the adjustments necessary to keep your efforts pointed toward a profitable outcome, you’ll find greater success in funding your marketing ideas.

 

 

How Do You Spell ROI?

Return on Investment: Everybody’s talking about ROI, but not everyone agrees on what it is. Given the various ways that I’ve heard marketers bandy about the term ROI, I wonder how many of them really understand the concept, and how many just use the term as a buzzword. There’s certainly a disconnect between the way many marketers use of the term and the traditional definition embraced by CEOs and CFOs.

Return on Investment: Everybody’s talking about ROI, but not everyone agrees on what it is.

Given the various ways that I’ve heard marketers bandy about the term ROI, I wonder how many of them really understand the concept, and how many just use the term as a buzzword.

There’s certainly a disconnect between the way many marketers use of the term and the traditional definition embraced by CEOs and CFOs.

A study by The Fournaise Group in 2012 revealed that:

  • 75 percent of CEOs think marketers misunderstand (and misuse) the “real business” definition of the words “Results,” “ROI” and “Performance” and, therefore, do not adequately speak the language of their top management.
  • 82 percent of B-to-C CEOs would like B-to-C ROI Marketers to focus on tracking, reporting and, very importantly, boosting four Key Marketing Performance Indicators: Sell-in, Sell-out, Market Share and Marketing ROI (defined as the correlation between marketing spending and the gross profit generated from it).

So CEOs clearly want marketers to get on board with the true definition of marketing ROI. You can calculate marketing ROI in two different ways:

1. Simple ROI:
Revenue attributed to Marketing Programs ÷ Marketing Costs

2. Incremental ROI:
(Revenue attributed to Marketing Programs – Marketing Costs) ÷ Marketing Costs

Either of these definitions is consistent with the classic direct marketing principles of Customer Lifetime Value (the “R”) and Allowable Acquisition Cost (the “I”).

Back in 2004, the Association of National Advertisers, in conjunction with Forrester Research, did a survey on the definition of ROI where respondents could select from a menu of meanings. The results showed that there was no definitive definition of ROI, but rather, that marketers attribute up to five different definitions of the term and many use it to refer to many (or any) marketing metrics.

Member Survey of Association of National Advertisers on meaning of ROI
(multiple responses allowed)

  • 66 percent Incremental sales revenue generated by marketing activities
  • 57 percent Changes in brand awareness
  • 55 percent Total sales revenue generated by marketing activities
  • 55 percent Changes in purchase intention
  • 51 percent Changes in attitudes toward the brand
  • 49 percent Changes in market share
  • 40 percent Number of leads generated
  • 34 percent Ratio of advertising costs to sales revenue
  • 34 percent Cost per lead generated
  • 30 percent Reach and frequency achieved
  • 25 percent Gross rating points delivered
  • 23 percent Cost per sale generated
  • 21 percent Post-buy analysis comparing media plan to actual media delivery
  • 19 percent Changes in the financial value of brand equity
  • 17 percent Increase in customer lifetime value
  • 6 percent Other/none of the above

While I couldn’t find an update of this study, clarity around the definition doesn’t seem to have improved in the last 10 years, given the results of The Fournaise Group survey. And the increased emphasis on digital and social media marketing in the last 10 years has probably made it worse. The Fournaise Group found that 69 percent of B-to-C CEOs believe B-to-C marketers now live too much in their creative and social media bubbles and focus too much on parameters such as “likes,” “tweets,” “feeds” or “followers.”

It’s time for marketers to stop using ROI as a buzzword for any marketing metric. You can’t measure and improve something if you don’t clearly define it.

Which Costs More: Video or Direct Mail?

What are the economics of producing and distributing a direct marketing video? And, how does it line up with costs for direct mail? If you’re a traditional direct marketer who has lived and breathed marketing costs, then running the numbers should come naturally. For this discussion, we’ll use direct mail as the comparison because historically it’s the distribution channel of choice

What are the economics of producing and distributing a direct marketing video? And, how does it line up with costs for direct mail? If you’re a traditional direct marketer who has lived and breathed marketing costs, then running the numbers should come naturally. For this discussion, we’ll use direct mail as the comparison because historically it’s the distribution channel of choice for direct marketers.

We’ve created a “Video Budget Checklist” that helps you itemize cost comparisons of creative, production and distribution between video and direct mail. If you’d like a copy, email me using the link in the left column. It’s free for our readers.

(If the video isn’t just above this line, click here to view it)

Direct mail can come in all sorts of configurations. Low-cost postcards. A simple package of a letter and flyer inside an envelope. Or more expensive with multiple enclosures such as a letter, fold-out four-color brochure, lift note, order form, reply envelope and outer envelope. Sometimes the outer envelope is a custom size or has an oversize window, or there are expensive die-cuts on cards or tip-on elements that are outside of typical print configuration.

The fixed costs to create each of these packages by employees, agencies or freelance creative teams are pretty broad, from several hundred dollars to well into the five-figures when using proven, top-flight direct response creative professionals.

A wide range of configurations can apply to video production, just as it can to direct mail.

You can pop out a 45-second video using your Webcam or flip-camera and post it on YouTube. You just have to ask yourself if the poorly lit, distracting background, muffled or echoey sound of that presentation exemplifies your organization. Alternatively, the video could be purely voice-over with words scrolling along on the screen. Or you can make it visually more alive with photography images or stock video footage. At a more costly level, you might shoot testimonials or interviews in a studio or shoot on location to demonstrate your product. Of course, length impacts cost (just as the number of components impacts cost in direct mail). There are a lot of variables that go into video production, just as there are for direct mail.

The point is this: Start with a budget you’re comfortable with, talk with writers (ideally writers experienced in both direct response print, online and video), develop a video script and storyboard, and work with a skilled video editor. Don’t just be wowed by special effects on someone’s demo reel. Dig in and learn what results were produced from some samples or case studies. You might just want voice-over with images on screen. (See our last blog post for an example of a 3-minute video and details of how we adapted it from a direct mail package.)

If your personality is a draw, you can record yourself on a small camera that can fit in a pocket with a lav microphone for under $200, total. Make sure you have good lighting and background. Or spring $500 or so and get a green screen and lights. That’s the equipment we use to shoot our video for this blog. Be aware, assembling the right equipment and editing software is the easy part. Knowing how to use it all to your best advantage comes from training and practice—or hiring a pro.

Distribution Costs
For direct mail, you have list costs if you’re renting names, data processing, printing, lettershop and postage. The cost can range widely. If you’re testing in small quantities, you’ll pay more per piece.

Knowing the volume of prospects or prior customers to mail, the marketer calculates how many responses are needed to make a specific profit (or break-even) objective. Translate that number into a required response rate to meet your objectives—your allowable marketing cost—and presto, you can use the test of reasonableness to see if the numbers pan out.

For video, your distribution cost is driving viewers to your landing page. You might email your customer file, or rent a list, and give the reader a compelling reason to click to your landing page to watch the video, possibly opt-in for more information, or attempt to convert to a buyer then. You will need to include the cost to set-up the landing page and related items.

We suggest you begin with a budget where your objective is to create a video for the amount of money it would cost to produce a moderate to elaborate direct mail package (although video production on the cheap is possible—and might work).

Then compare the cost to print and mail a direct mail package versus that of emailing (whether it’s to customers at a low cost to email, or rent an email list at a higher cost). And add in the cost for developing your landing page. Chances are your cost per contact will be less for email and the landing page, but as we all know, it all comes down to the cost per sale or lead so bring your focus back to this metric.

One example worth mentioning is that of the Dollar Shave Club. Perhaps you’ve read about it. A big success for a 1:34 video that reportedly cost $4,500 and after a few days generated over 12,000 orders. The video has now been viewed over 4.6 million times.

Bottom line: just as you’d run the numbers to see if it makes financial sense to use direct mail, you need to run the numbers for video, too. And you just might be surprised how favorable the numbers look to reach out and explore video.

P.S.: Just out: comScore has released its April 2012 online video rankings data with a few notable metrics:

  1. 181 million U.S. Internet users watched nearly 37 billion online content videos in April.
  2. 85.5 percent of U.S. Internet audience viewed online video.
  3. The duration of the average online content video was 6.4 minutes.