Why Professional Services Firms Need to Rethink Their Marketing Budgets
Most professional services organizations do a lot of things right. They know their business. They serve their clients well. And most are good business people. That’s why I am always amazed at how many fail at the fundamental task of setting a marketing budget.
From my experience, the most common approach to marketing sounds something like this. “Let’s tally our staffing costs and fixed expenses; plug in some line items for staff training and development, entertainment and other more discretionary expenses; set a comfortably aggressive net profit goal and then see if there is anything left for marketing.”
Sound familiar? Typically there’s not much money remaining after backing out these other line items so marketing gets the leftovers.
Marketing textbooks call this budgeting method “arbitrary and affordable.” It may be affordable and it is certainly arbitrary, but it is seldom effective. And it reveals a harsh reality. Many professional services companies are, at best, uncomfortable with marketing or, at worst; simply do not believe in its value. Oh, they talk a good game about “needing to do more marketing” but, when it comes time to invest the resources to do it right, that commitment quickly withers away. Good intentions give way because there is no foundation in faith. Marketing is viewed as an expense, not an investment. Management would rather hold that money back and hope it falls to the bottom line.
Candidly, if you don’t have faith in the power of marketing, you may actually be better served not to invest in it at all. That may sound harsh, but it is absolutely true.
Fortunately, some firms do believe. But they still lack comfort in setting goals and determining and executing effective strategies. As a result, they struggle when it comes to establishing an appropriate budget. These firms are most likely to employ another budgeting methodology based on a percentage of sales or revenue. Simply, this involves looking at industry norms and plugging that same percentage into the firm’s operating budget.
The problem with this approach is that it assumes everyone in the industry has the same needs, objectives and marketing environment. Obviously that is rarely the case.
An even bigger issue is the self-fulfilling prophecy scenario. Let’s say you have a bad year, or you anticipate an economic downturn in the upcoming year. So instead of maintaining your marketing budget at the level of the previous year at least, it gets cut to reflect the anticipated decline in revenue. Not surprisingly, less marketing means less revenue. And so the downward spiral begins.
There are other marketing methodologies, but the one I believe makes the most sense is based on the firm’s objectives and tasks. It’s the same approach you would use to build an addition on your office and reconfigure your computer operations. The difference is that it’s easier to see and determine the scope of a capital improvement program than it is to assess the scope of one’s marketing needs.
Continuing the analogy, a remodeling project requires a blue print and a punch list of specific purchases and tasks. A marketing program really is no different. It too requires a punch list of specific needs and task. In other words, a marketing plan.
Does your firm have a strategic marketing plan? If not, you’re doing marketing by the seat of your pants. Not exactly the most efficient way to run a business.
Another mistake we often see when it comes to setting marketing budgets involves what is included and what isn’t.
Does it include staffing costs, for example? Generally, staffing expenses are not included because they tend to over-state the actual marketing investment – especially when FTEs are assigned to marketing while, in fact, some of their responsibilities are allocated for other operational needs.
Charitable contributions are often another area of confusion. If support of a given cause or event has a clear marketing benefit, that’s one thing. But most contributions fall into the category of altruism. Corporate generosity is a great thing, but it does not qualify as a marketing expense.
As we begin the fourth quarter of the calendar year, many of you are likely in the budgeting process. I would encourage you to rethink how marketing fits into that process. It can make a profound difference in the quality and impact of your future marketing success.
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