Preparing an annual marketing budget.
Author | Hatch, Cary |
Position | Communications Q&A |
Q: In the past I've relied on my "gut" to prepare our annual marketing budget, but we acquired another bank last year and we're now too big for such an unscientific approach. How do I determine how much we should spend and what we should expect in return?
A: Decision-makers sometimes approve budgets based on last year's budget or what money is left over, as opposed to actual need. That's why it's critical to master the tools of the budget development process.
One of the more widespread methods of determining the overall budget for advertising, direct response and related tactics is based on a percentage of assets. For example, if the average budget for like-sized banks in your market is 0.1 percent of assets, it's easy to defend your budget being 0.1 percent of assets. However, this approach presents a couple of downsides. Using this formula, declining assets would reduce your budget, which could further undermine your banks' performance.
Another compelling mason not to budget this way is that not all banks are average. (Is yours?) While an established brand might safely budget in line with industry averages, less established competitors--or those experiencing special situation--may require spending at a substantially higher level.
For like services and products front established brands, share of advertising (also known as share of voice) has historically corresponded to share of market. Using this model, if your bank's share of the market is 25 percent, then you would budget for an advertising program that assures your bank will appear in 30 percent of all the available space and time for financial services advertising in that market. The rule of thumb is that in order to maintain your share of the market, you need to have a share of voice that is slightly higher (usually about 25 percent greater) than your market share.
With task-based budgeting, marketers first set goals and objectives; then they map out strategies and...
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