by Francine Carb, President
My clients who are in professional services industries, like engineering, architecture, and construction, often ask about determining their marketing budget. How much should they be? What should they include? And does our firm even need one?
After seeing my clients struggle with these issues for many years, I’ve devised a very reliable, widely accepted formula. Try it and I think you’ll be satisfied, or maybe even happy, with the process and the answers.
First, take your forward-looking year’s forecasted revenue projection. For this example, let’s use $25 million for fiscal year 2015. Much literature has been written about what percentage to use—typically from 3% in manufacturing to 20% in the software business, but neither really makes sense until you dig deeper. So let’s continue.
Then, take 10% of that number (which is really an overall average from multiple industries), so that would be 2.5 million dollars. Stay with me—that’s not your budget number. The 10 percent number is the baseline upon which to “normalize” it for your specific firm. It gets a little more complicated, but worth the effort.
Now, take a weighted average of the margin for each business unit. For this example, let’s try the following:
Business unit 1’s margin is 50%, but only contributes 10% to the business
Business unit 2’s margin is 10% and contributes 50%
Business unit 3’s margin is 25% and contributes 20%
Business unit 4’s margin is 15% and contributes 10%
Business unit 5’s margin is 20% and contributes 10%
Do the multiplication and add the results:
5% + 5% +5% + 1.5% + 2% = 18.5%
Now you can apply this realistic weighted average margin to the $2.5 million dollar baseline above, which gives you $462,500. Now, that feels like an appropriate budget for a $25M engineering firm with the margins depicted above, doesn’t it?
So, how should you allocate that budget? Here’s where the “art” comes in. First of all, do not allocate it by the contribution from each business unit. In fact, using the example above would put 50% of the budget to Business Unit 2. That would be a mistake because that’s the part of the business that pretty much runs on autopilot—it doesn’t need marketing.
First, look at the foundational marketing elements of your firm and see if they need an upgrade or refresh. For instance, if you need a completely new website, you likely want to apportion a sizable chunk of that budget to get your digital brand back on track.
Next look at trade shows and conferences, those usually consume a big portion of the budget. Now, with what’s left, you should look at those business units, initiatives, or innovations and are likely to attract the most new business and create campaigns around them—whether they take
the form of advertising, email marketing, thought leadership programs, blog series, microsite, or others.
This is just the beginning, but I hope this helps you get off to a great start. And if you need some help determining your marketing budget or implementing those new marketing initiatives, do not hesitate to give us a call.