Many firms are becoming increasingly aware of the fact that they don’t know how much to spend on marketing. On the one hand, it’s harder than ever to get work, there’s downward fee pressure resulting from too much competition and too little differentiation, and most firms have never really given a long-term marketing process a chance to work. Money has to be spent on marketing! On the other hand, profits are down, revenues are flat, and anything that cannot be cost-justified should be cut. Marketing is one of those areas that most would deem “non-essential.” So what to do? While no doubt you have all kinds of data that you can look back on as to how much you’ve spent, who is selling what, etc., I suggest you get out a clean sheet of paper and start to build a new budget from scratch. Question everything! But before we get into that, we first need to make a few key assumptions:Actual marketing costs for A/E and environmental consulting firms are ALWAYS lower than what your accounting system tells you. People charge time to marketing because it looks better than doing nothing. That overstates it.The biggest single line item in the marketing budget is technical and professional staff labor. This is not within the control of the marketing department. Hence, while it is part of the marketing budget, it is not something that the marketing department can control because the people who can charge this time do not report to marketing (nor should they!). Any analysis of marketing costs where the marketing department is supposed to be accountable cannot include professional and technical staff labor charged to marketing.Accounting will need to supply and maintain cost data, but the budget will be put together by the firm’s marketing director. This is the person who is supposed to have a better handle on this information than anyone else. On the other hand, it is important to note that it is not the role of marketing to maintain cost or sales data outside of the accounting system. This is an accounting function that is best handled by accounting staff! It’s impossible to develop a budget without having a very clear idea of what needs to be accomplished in the coming year. The final budget will be based on need, on what the firm can afford, and the firm’s appetite for investing in marketing. All three of these factors— and more— must be considered when building a budget. To pull the budget together, here are some of the steps you need to follow:Do a little research. Know the business that you are in and what’s typical. We’ve all seen the statistic that the average A/E/P or environmental firm spends between 4.5% and 6% of net service revenue on marketing. But every firm is different. Firms that are always subconsultants to other design professionals will probably spend less than this amount. Firms that are prime-basis or high-design firms will probably spend a lot more. Fast-growth firms and high-profit firms spend more. So you really can’t just take a number out of a survey that is made up of firms of all types and sizes and think that should be the number you spend. It takes a lot more research than that!Take a look at your revenue growth goals and history vs. your historical marketing expenses. This is always a good starting point. For example, some years back we worked with a client that was experiencing zero growth. They were a fine firm and profitable but had not grown at all during the five years preceding the time we started working with them. They set a goal for a 15% growth over the next year. But when the question came up about how much they would invest in marketing, tempers flared. Those opposed to spending even a single nickel more could not understand the link between marketing expenses and revenue growth rate. It’s there and it’s real. And you need to have the ammo ready to support this thinking when this issue gets finalized in the strategic plan.Find out what each of the business units is calling for in terms of growth. Develop a sense of marketing expenses and results per business unit. In any marketing budgeting exercise it makes sense to me to look at the firm unit-by-unit (those units could be market sectors, offices, or disciplines, with market sectors being by far and away the best way to look at this information), and see what the revenue, growth rate, and marketing expenses have been, as well as planned marketing expenses and growth goals. Do these numbers make sense on a macro level? An example where it did not make sense that I observed recently was that of a client of ours that was organized around six to eight market sectors. The one market sector that was their largest and fastest-growing had the lowest planned marketing expenditures (less than 3.5%) whereas their smallest, slowest-growing market sector had the largest marketing expenditures planned (20%+ of revenue!). This was crazy and did not support the firm’s overall business plan whatsoever, but no one had ever looked at the budget that way. Not to say that every budget should be spread equally. There may be big growth plans called for in one particular sector that require a lot more money to be spent. In this case, we ended up taking some money out of the 20% budget and putting it into the 3.5% budget.Make sure that top management understands all of the above. Seek direction on where to go next for a macro budget. After steps 1-3 above have been completed, top management input is once again required. How much do they want to spend? What markets do they want to spend it in? What other input is necessary before a detailed plan and budget are established? At this stage in the budgeting process, top management should set some more clear parameters for the marketing budget as it relates to their revenue growth targets, industry norms, firm norms, and market sectors.Develop a list of every single planned marketing activity and initiative for each business unit. This is where you get into the nitty-gritty detail that is necessary for the budget. Each effort— whether it be a personal letter, a postcard series, a new brochure, a study, a press release program, etc.— has to be fully priced out. The breakdown on each piece should include creative services (if outsiders are required for design or writing), photography, bought images, printing, postage, mail house fees, list rentals (if any), and more. Obviously, this takes a great deal of thought about each group’s or unit’s plan for the entire year and about the design and quantity of every piece and every initiative. EVERY cost needs to be planned for. And by the way, this is much easier to do when you’re planning for market sectors as opposed to geographic units or disciplines. Marketing efforts can be discretely tied to market sectors. It’s much harder to tie down marketing efforts to geographic units or disciplines.Develop a list of every single firm-wide planned marketing activity and initiative (those that are not part of any business unit or market sector). This list would include everything from the company web site to the overall company brochure to the company Christmas card. Each of these items needs a detailed cost estimate prepared for input to the budget. Develop a list of every planned improvement for marketing infrastructure. These expenses may include the hiring of an image consultant to come up with a whole new logo and identity for the firm to the cost for purchasing, designing, and implementing a new customer relationship management (CRM) system. Other items that would fit into this category might be the cost for a PR consultant or the cost for part-time help to input data on past projects to the new CRM.Develop a list of all other marketing costs not tied to any specific campaign or infrastructure. This is where you will plug in the labor of all assigned marketing department staff. Use raw labor rates if you want to be able to make meaningful comparisons with other firms by using survey data from sources such as ZweigWhite’s 2003 Marketing Survey of A/E/P & Environmental Consulting Firms and others. This is also the place to plug in any costs for a graphic image overhaul of the firm or other similar expenses. Add up all costs. If they exceed the philosophical limits set by the strategic plan and the general direction for coming year as set by top management, work with each business unit leader and the marketing department itself to scale back on activities and planned expenditures. Finalize the budget based on the firm’s strategic plan, additional top management input, list of planned marketing activities for each business unit, and list of planned activities for the firm-wide marketing infrastructure improvements and initiatives. And make sure you do all this BEFORE the New Year starts! I never understood how some firms would release their budget for the year three months into the year! What is that about? This stuff needs to be done before the year starts if it is going to be meaningful. And the great thing is it forces everyone to do their homework and think about what they are going to do in the coming year before it starts. That gives you the best shot at actually accomplishing what you set out to do. By now I hope every reader understands that it is nearly impossible to develop a meaningful budget without a very clear idea of what needs to be accomplished in the coming year. The process for developing the budget has to accommodate what the managers say they need for marketing, how much the firm can afford, and a clear understanding and recognition of what the firm’s appetite is for investing in marketing.Originally published 8/11/2003
About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.
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