John Wanamaker (1838-1922), a successful United States business owner, religious leader and political figure, famously said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” While some executives feel similarly about brand communications, the truth is, it should support a company’s efforts to drive revenue in a very clear way. The key is understanding what brand communications is, what it is not, and how to measure its success.
Brand Communications is not Sales
It’s amazing to me how many senior executives don’t understand that brand communications is NOT sales. Instead of selling your product or service, brand communications helps create an environment in which all elements of the organization can thrive including sales. When the target audience is aware of your brand and has a favorable perception of it, then all company efforts including investor relations, talent recruiting, community relations and especially sales efforts can reach their greatest potential.
However, sales efforts are unlikely to see any meaningful traction in the absence of a strong and broadly distributed brand image. To wit, how often does a consumer purchase a sophisticated and complex product, like financial products, of which he or she has no awareness, knowledge or opinions?
The following are a few of the tools or disciplines that brand communications can use to affect an audience’s awareness and perception of your brand:
- Advertising – print, broadcast, digital (including mobile), outdoor, etc.
- Owned channels – channels the organization controls including its website, social media pages and blogs.
- Media relations/earned media – securing placement of positive stories within the news-reporting media including newspapers, trade media, broadcast TV, broadcast radio, bloggers, influencers, etc.
- Event marketing – reach target audiences through a sponsored brand presence at events.
But, how do you measure the success of a brand communications campaign? While it can indirectly support sales and revenue, the communications and marketing teams are not directly responsible for those efforts, so measuring these teams only by those outcomes would be unfair. Even so, there are outcomes that support sales and revenue that can be directly attributed to these teams, and those metrics include the following:
- Impressions – how many members of the target audience were exposed to our brand messages and images? How many saw our advertising? How many attended an event where our brand signage was present? How many visited our website, blog or social media pages? How many heard our spokesperson speak at an event or read his or her quotes and thought leadership in a news article?
- Engagement – did members of the target audience interact with our brand in meaningful ways? How many talked to the staff at our booth at a trade show or event? How many liked, shared or commented about our social media posts or blog posts?
- Message Adoption – how many began using our brand messages as they engaged with our brand or talked to others about our brand? This can be measured by monitoring social media posts or by measuring a message’s effectiveness via a marketing survey.
How Much Should I Spend?
Now that we have defined metrics for outcomes directly attributable to the brand communications and marketing teams, the next question is, what should the overall brand marketing budget be? Credible sources provide a range of answers. According to a marketing study by Deloitte that was published by the Wall Street Journal, marketing budgets on average comprise 11% of total company budgets.
In terms of what is recommended, many say a company seeking to grow should earmark 10% of its annual budget for marketing. A company might calculate its ideal marketing budget with the formulas below:
- Total Revenue x 5% = Marketing budget required to maintain current awareness and visibility
- Total Revenue x 10% = Marketing budget required to grow and gain market share
The U.S. Small Business Administration recommends spending 7% – 8% of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales and your net profit margin—after all expenses—is in the 10% to 12% range.
Noted CMO whisperer and Forbes contributor Steve Olenski cites Gartner research which indicates companies, on average, spend about 12% of their annual revenue on marketing, but that varies heavily by industry. For example, a 2017 CMO survey found that the education industry has the highest percentage, at 18.5% of total revenue, while mining and construction came in at the lowest, with 2%. Most industries fell somewhere between 6% – 11%.
Once you determine what your overall brand and marketing communications budget ought to be, how do you balance your spend between traditional and digital? Industry benchmarks are sometimes helpful to know, so you may want to review reports from Forrester Research and eMarketer which show the estimated allocation of marketing funds offline vs. online and across the digital channels:
- In 2018, the average firm was expected to allocate 42% of their marketing budget to online, and this rate is expected to grow to 45% by 2020
- Search engine marketing will capture the largest share of online spend with online display (banner ads, online video, etc.) taking the second largest share
- Online video will represent the highest growth category, with the anticipated investment more than doubling 2016 numbers by 2021
- Social media advertising investments will continue to grow, with a 17% compound annual growth rate from 2016 – 2021, and is expected to represent 25% of total online spending in 2018.
- Mobile marketing has grown to a point that it’s no longer tracked in the forecast and it’s presumed to be considered across all channels
- Digital marketing is pacing at an 11% compound annual growth rate between 2016 and 2021 with the biggest growth occurring in online video.
- Investment in paid search, display advertising, social media advertising, online video advertising and email marketing is predicted to account for 46% of all advertising by 2021.
Ready to Grow?
In conclusion, without strong brand awareness and favorability among your target audience, you may find it difficult if not impossible to reach your growth goals. Increased investment in brand marketing can increase brand awareness and favorability in measurable ways. And, the consensus among credible and conservative industry sources is that overall brand and marketing spend should be between 6% and 11% of a company’s annual revenue if it desires to grow.
Considering the recommendations of industry experts, should you immediately ramp up from your current marketing spend to the low end of the spend range (6%) or higher? No. Like any prudent investment, plans should be piloted and confirmed before being scaled up. There’s no magic formula that will give your organization all the answers overnight. But, by carefully measuring your efforts and adjusting as you go, in time you can develop a powerful brand that breathes life into every aspect of your organization’s performance.
Great article providing a starting point for a marketing budget!
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Thanks for your comment! Lots of people focused on budgets for 2020 right now. Wanted to give them some ammo as they seek to loosen up purse strings with senior execs.