Introduction
Marketing is imperative to stay relevant in the highly competitive market we have today. And to stay successful at marketing, companies have to make smart marketing investments to ensure sustainability over the long term. But, how can a brand know how much marketing investment is enough to stay competitive? It’s an important decision since finding an optimum level of marketing investment helps companies regulate their overall marketing budget and achieve a more efficient resource allocation. Not just that, it can impact a company’s revenue and profit. Therefore, we have created a quick guide to help readers learn how to define the right level of marketing investment. Let’s cut to the chase and get started!
1. Rethink and define your marketing objectives
The bottom-up approach to finding the marketing objectives is certainly missing these days as more and more marketers are pushed to work with what is at their disposal. Maximizing the ROI with a top-down approach is easier said than done. Therefore, we suggest readers drop everything down and get back to the drawing board, i.e., spend time figuring out their marketing objectives. Have a good understanding of your marketing objectives so you can plan the investments well. Find an estimate of the money you will need (of your total budget) for marketing. What if you don’t have a budget in place? Well, then we’d recommend you spend at least 10 percent of the monthly revenue as a marketing investment.
2. Shortlist the marketing channels
Most companies mindlessly follow the traditional methods of marketing and end up losing their hard-earned money. What works for one brand doesn’t necessarily work for another. So, hold your horses and first figure out the marketing channels you’d want to target. Once you do that, dive deeper into the planning phase to shortlist the type of content you’d produce and the posting frequency. This will not only help estimate the marketing budget but will also allow companies to determine the manpower required to get the job done. We recommend readers also take customer acquisition and customer retention into consideration, making sure the cost of customer retention doesn’t go over the cost of acquisition.
3. Know your overall marketing budget
Business owners can estimate their marketing budget in several ways. You may go ahead and choose a certain percentage of the overall budget and put the money into marketing. Or you may determine a certain amount of money to spend on marketing every month. But knowing the marketing budget is always an efficient way to handle marketing investments. A practical way of finding your monthly marketing budget is by dividing the overall budget by 12 and then further dividing it by 4. The result will be the percentage of the monthly revenue you should spend on marketing.
4. Track Investment Vs. ROI
ROI of marketing, often measured in percentages of revenue, is quite a helpful metric as it includes factors like content, media, creation, and distribution. Tracking the ROI against marketing investments is a simple method to determine the overall profitability of your marketing operation. Tracking and quantifying the ROI helps figure out the productivity of the marketing efforts and helps understand why a particular marketing channel or content type is crucial. The concept is quite easy to understand. You want to always break even with your marketing investments. In other words, you want to gain an ROI that is equal to or larger than the marketing investment. If that’s not the case, you are probably spending less or spending more than what you should have been spending in the first place.
5. Take help from industry benchmarks
Another sure-shot way of setting the marketing budget is by using industry benchmarks. In this, you will have to sample the brands that exist in your industry. Find out the average amount the companies spend on marketing. Once you have the number, compare it with your marketing budget. The average marketing investment helps make changes to the marketing budget as you’d want to pump up your marketing budget if you have been spending less than the average. And if you have been overspending, you’d want to short the marketing budget to meet the industry benchmarks. However, make sure the companies you sample in the industry are equal in scale, preferably, similar to yours.
6. Look for long-term optimization
Optimization is the name of the game, and it is supported by constant tracking and reporting. You need to introduce accountability to stay honest with your marketing investments. Therefore, we highly recommend you set up foolproof tracking mechanisms that generate regular reports — helping you make informed resource allocation decisions. Not just that, optimization helps compare the channels in your marketing mix across defining variables like customer lifetime value and customer acquisition costs. Again, long-term optimization also depends on your company goals. So, we highly recommend you determine the company’s objective before concluding whether you want to spend more on marketing or maintain the current level of investments.
What should be the ideal marketing investment level?
Well, the ideal marketing investment level is quite subjective. It depends on the company’s objectives and its current marketing situation. One way to find the ideal marketing investment is by operating at maximum ROI. But that doesn’t necessarily result in maximum profit or revenue. Hence, brand owners should conduct an in-depth assessment of their current objectives and keep monitoring the marketing investments, marketing mixes, and results to find the ideal marketing investment level.
Indeed, this will take time. But, it will leave you with concrete answers that your company can rely on. We also recommend you keep monitoring the marketing mix as things in marketing keep changing. In other words, your marketing investments will also depend on the changing marketing trends. Again, begin the entire process with a bottom-up approach as opposed to a top-down one. Did you find this post helpful? Let us know in the comments. Also, don’t forget to check out other informative posts on the blog.