How Much Should You Spend on Marketing?
What do firms typically spend on marketing? 5% of revenue? 10% of revenue? Does it matter? Forget about benchmarks as we talk about how to develop a proper marketing budget.
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Jason Mlicki: I have all day, but so here’s my thought, I’ve been thinking about this, I think the answer is incredibly simple. Do you want to know what the answer is? How much should you invest in marketing? It’s more. I have never met a client in my entire life where I thought, “Wow, you guys are over-investing.” That’s never happened to me, so that’s my answer. My answer is more. I think almost every firm systemically under-invests.
Jeff McKay: So, tell me more about that idea.
Jason Mlicki: That was the consensus of the thought. It was more of a joke.
Jeff McKay: But I bet you most marketers think that way, “We need more.” I mean, who doesn’t want more?
Jason Mlicki: Yeah. I mean, absolutely.
Jeff McKay: I would never put more into marketing until you’ve proven me what I’m spending works, because-
Jason Mlicki: Okay, so here’s my comment to that though. Well, here’s my comment to that real quick, before you go down the because path. This is more of an interest comment. I hear that all the time, “Prove to me that the investment I’m making in marketing is working.” When’s the last time you tried to prove the investment you’re making in your partners? No one ever says, “What’s the ROI on the practice leader over there? Is he delivering return?”. I think firms spend egregiously on things that they truly believe in.
I mean, they’ll go out and acquire whole new businesses to access new geographies or disciplines, spending millions and millions of dollars with a sketchy idea of what the ROI is going to be on that. They’ll hire people. They’ll send partners across the country to open up new offices with limited input as to whether or not that’s going to be successful and a sketchy idea of what the ROI is on that, but then the marketing lead says, “I want to spend $20,000 on this thought leadership campaign,” and everybody hyperventilates, and falls over backwards, and begs for ROI.
So, why do we demand ROI of marketing activities when we hardly demand ROI of anything else? There’s no proven ROI on almost anything in these practices at all, but marketing’s got to have a proven ROI. Why is that? Because we don’t believe in it. Right?
Jeff McKay: I guess you could look at this way. I feel like this kind of gets back to our earlier discussion about priorities. We do make our choices even when we don’t make our choices, and I think it also touches on some of the behavioral economics, things that we talked about as well. We have many different forms of biases that influences the decisions we make around all of these firm decisions. So, I don’t argue with you.
You heard me talk about the BS of professional services and how organizational structure, competing incentives, and just the type of people that are attracted to professional services create really dysfunctional environments. So, I would not argue that your point is not absolutely correct.
Jason Mlicki: There’s a big but at the end of that, “But let’s go back in this direction. “But I want to talk about our…” No, no actually, I want to hear what you have to say though, you were about to say, “I would not invest another dollar in marketing unless these things were true.” What are those things actually?
Jeff McKay: Let me take a step back, because I think you did pick up on a but. I think it’s so easy in professional services firms to take the path of least resistance and kind of go with the flow, you know, “This is kind of the culture. This person wields the power. If they want to invest this, they’re going to invest it.” We’ve seen that everywhere, but it’s particularly prevalent in professional services because so much of the decision making is decentralized. You get your budget allocated probably some percent of your overall contribution to revenue, “Go spend this money however you want.”
That money gets spent on legacy stuff, “We’ve always done it,” or, “We’re spending this money for this donation because they’re a big client,” or whatever. So, you get that kind of garbage marketing investment. You can see that play out in any number of ways, but I think prudent leaders take a step back and they lead and they say, “That may be the way you do it, but that’s not the way I am doing it.” I think the best leaders introduce execution discipline, and they see this dysfunction going on in the firm but they choose not to participate in it.
I don’t know how many times I’ve said, whether it’s after a geographical distribution, or an industry, or a line of business, or a corporate, I don’t care what amount of money you give me, I am going to maximize it. I prefer to say, “Hey, keep it flat. Cut me back ten percent.” To me, that unleashes the creativity of a high performing marketing team. You find ways to have an impact no matter what level of investment is. I think when you keep throwing money at stuff, the creativity goes out the window because you say, “Oh yeah, we’ll go sponsor this event,” or, “Yeah, we’ll print this,” or, “We’ll do that.” Most of that stuff doesn’t do any good, and normally those marketing dollars are going up and down from quarter-to-quarter or year-to-year. So, they’re really not sustaining anything.
I think it’s the steady crime towards some kind of strategic metric that’s measuring impact. So, I just think I would not spend more until you demonstrated the ROI. With the tools that you and I use and any sophisticated marketer use, it’s getting much easier to measure that. It takes time-
Jason Mlicki: Yeah. I mean, the only downside I see to that whole discussion at times … Now first off, some of the most successful leaders I’ve seen who have what I would consider to be high performance marketing programs, I’m not going to say teams because it’s not necessarily the teams, it might just be the firm itself is high performance from a marketing perspective, they care about outcomes but they don’t care necessarily about proving ROI, because they just sort of believe it works. “I know this works. I want the data to back it up, but I’m not going to make the decisions around ROI.”
Now I lost my train of thought a little bit, but I think that what scares me about the ROI discussion a little bit is that, yeah, we have the tool sets to, in theory, track down to the individual content asset and prove its contribution to leads and however we want to look at it. Right? At the end of the day, you know and I know that marketing is part art and part science, and we try to measure every last detail. The art gets lost, and when the art gets… comes with it.
So, if we want to hyper measure every last headline, every last subject line, every last detail of what we write down to … and optimize everything it possibly can do for us, somewhere there is a big idea. The big idea is art. It kind of goes back to that behavioral economic stuff, that idea of … So much of what thought leadership is, I think, it’s about finding a new way of looking at a problem that’s been looked at so many times before and then finding a compelling way to tell that so that people listen. I mean, behavioral economics is a thing, but it was a thing long before it was called behavioral economics. Then all of a sudden when you categorize it and make sense of it and give people something that’s more contextually relevant, it’s probably blew up. Right?
Jeff McKay: Yes.
Jason Mlicki: I don’t know. I’m not convinced that you should necessarily hinge your entire investment decision on an ROI. I think on some level you just have to conceptually believe that, “We’re headed in this direction, and if we don’t have a unique point-of-view on what this practice means to our clients and discover a time, then we’re not going to succeed whether we have ROI to prove that to be true or not.” You’ve got to finally believe that, I think, on some level.
My only other comment, and I agree with so much of what you said, the only thing that does scare me a little bit for firms is if the message is, “Well, let’s just starve it a little bit, and then we’ll unleash creativity.” Well, I’m not so sure that that’s a healthy cultural dynamic over the long haul. I mean, yes, there are pockets of time during our recessionary period where that certainly played out when everyone was stretched, and everyone sort of squeezed, and then they found new ways to do things that they hadn’t thought possible before. I’m not cultural to actually be squeezing, you know, to just kind of constantly squeeze every last inch, every last dollar out of that mechanism. I don’t think that’s a healthy dynamic.
I think there’s probably … It’s maybe more like a pumping heart. You give it budget, you let it expand, you let it create value, and then you squeeze it a little bit to find new creativity. I think if you’re constantly squeezing, you’re just going to basically take the function and it’s going to erode to nothing.
Jeff McKay: I think there’s a healthy way of doing it.
Jason Mlicki: I don’t know if that’s what you’re saying though, because I mean … It’s not like an operational function. You look at a retailer and the operational function of Walmart, the agenda forever has been to squeeze the supply base. Right? So, you’re constantly looking for more efficiency. I don’t think marketing is about creating more efficiency. Marketing should be about unlocking innovation and creating new top line revenue. If you’re constantly squeezing it, then you’re not necessarily going to get to your desired outcome.
Jeff McKay: I agree, but I think what you said-
Jason Mlicki: Oh, there’s that big but again.
Jeff McKay: That’s funny, yeah. Maybe you just found my new nickname. The end all be all is not allocating more budget until you’ve proven a return, is not about efficiency, about how you’re able to spend that money in an efficient way. In most of the marketing organizations that I’ve run in professional services firms, generally head count is the biggest single line item for marketing. Unless you’re doing some kind of grandiose events, or you’ve got a big media buy, or something like that, the majority of this stuff is spent on bodies. I think you have to have the right types of people on the team to really have an impact.
So, having said that, what I’m saying is the amount of money that you’re going to spend on marketing needs to reflect what impact you’re trying to have as a marketing organization. You’ve heard me talk about the two schools of marketing thought. The productivity school is that more traditional professional services where they’re focused on producing stuff, and I think what you’re describing in terms of more let the art flow could fall into the productivity school in a partner’s mind. Where I come from the growth school where I’m talking about and gearing towards strategic impact.
So, if you need to elevate brand relevance in a given market or around a given practice, that’s going to require, by definition, time, money, effort, the thought leadership, the intellectual capital that’s relevant to that market. Those things are quite measurable in my mind.
Jason Mlicki: Well, I totally agree with you. Actually, I would disagree with the comment that the art of marketing is part of productivity, but I would actually argue it’s the exact opposite. Everything you just said, totally true, all measurable, but not until you’ve done it. So, you’re going to have to have the confidence to step up and say, “Well, we’re going to make this strategic investment with no proof that it’s going to work the first time we do it. Once we’ve done it, it’s probably still not going to deliver the ROI we expected in the first pass. So, now we’re going to have to retrench ourselves and be confident that it’s going to get the ROI we want in the end after we’ve done it for a little while.”
So, I think that’s where the art comes in is just saying, “Yeah, if you want to have that strategic impact, if you’ve never done it before, there’s no way you’re going to have any idea what the ROI on that’s going to be.” So, it’s a leap of faith.
Jeff McKay: Fair enough. I think any investment to some degree could be a leap of faith.
Jason Mlicki: Absolutely.
Jeff McKay: Anyone who’s gone through business school who’s discounting cash flows, and doing net present values, and any kind of scenario planning kind of gets that.
Jason Mlicki: Can I tell you a quick story about that real quick, by the way?
Jeff McKay: Yeah.
Jason Mlicki: Okay. This is actually a pretty funny story. When I was in business school, the first thing we had to do was this deep and team based analysis into whether or not Ford should acquire Jaguar. They gave us all these spreadsheet and these tool sets. We split up into team over three days, and we had to basically crunch all these numbers and kind of come back and make a presentation to the CEO of Ford and a bunch of his senior executives. I mean, this is real life, they’d already made a decision about whether or not they should make this acquisition.
Now of course, you know this is a business case, business school case. Anyway, you crunch it five ways from Sunday, every team in the room and nobody can find any way that there was a positive MPV on it. So, there’s just no way to look at this and go, “This is a good idea.” Everybody’s looking for ways to make the presentation that says … they did, because Ford everyone knew that Ford bought Jaguar.
Anyway, everyone goes and makes their presentation. The Ford CEO is like, “Oh, this is great.” Then basically he goes on a riff and says, “We bought Jaguar because we wanted it.” They couldn’t draw any positive MPV on the acquisition whatsoever, they just wanted the brand, they just wanted the product. Anyway, it was a leap of faith. It was a gigantic multimillion dollar leap of faith, but it was a leap of faith, “We can do something with this brand that we can’t quantify on paper whatsoever.”
Jeff McKay: I would argue that’s-
Jason Mlicki: Random side story, but that happens in business all the time.
Jeff McKay: Yes. That’s no different than partner hubris, right?
Jason Mlicki: Yeah.
Jeff McKay: We talk about the fallacy of professional services productization. We had this one client who paid us to do this one project and it was a success, so “Let’s turn it into a product and sell it to everybody.” It always fails when that’s the approach. History has proven that Ford made a mistake with Jaguar. I mean, to me, it is just completely inconsistent with their brand and that was just ego. I mean, I think the Ford executives are thinking they have brand envy. “We want to be high quality or high prestige, not even high quality like Jaguar.”
They don’t, getting back to what I was saying around brand relevance, they really don’t have a relevant brand in the high-end car space. I think you and I are saying the same thing, Jason, but let me illustrate with an example and then you can beat up my thinking. I do agree with you about the art of marketing, because one of the key roles on high performance marketing team, in my mind, is the creative. Creative is not about making things pretty, it’s about making them understandable. It’s about nudging that idea, to go back to our behavioral economics, of nudging or knocking out of whack the way people look at something. So, I’m all in on the art, so don’t misconstrue me on that one.
Let’s just take a strategic impact that a firm wants that marketing can deliver, and let’s use one that we’ve already kind of touched on, brand relevance. I would think most people don’t even talk in terms of brand relevance. They talk about brand awareness, or maybe brand preference, but they don’t talk about the concept of brand relevance. So, to me, relevance is one of the most important strategic measures of a firm’s ability to produce revenue. If you have a core capability and you want to go after a given market, whether that’s industry, or firm size, or geography, but your brand has no relevance there, people do not consider you as a viable solution, you are not going to perform in that market. If you are, it’s going to be hand-to-hand combat, very slow through partner’s selling efforts.
So, if a firm were to establish brand relevance along one of those lines, industry, core capability, or geography as a strategic measure and they want to invest in it and they want to know the ROI, how would you go about measuring that in a fair way? Would you say you can’t?
Jason Mlicki: I think you absolutely can. I would argue that 99% of the firms that I’ve dealt with don’t care, because the cost of the measurements exceeds the benefit of knowing.
Jeff McKay: Where is the expense of measurement in that?
Jason Mlicki: Well, you always get to field a survey and you almost always have to compensate the participants, because if you’re asking them to participate in a survey that’s really all about you, they’re not going to do it unless you pay them. Then you’re usually going to have to buy a list to access them, because it doesn’t do you a whole lot of good to do a brand study with only your known audience, only the people in your database. You’ve got to kind of slice beyond that, so you’re going to have to go acquire people to talk to in one way, shape, or form.
So, you’ve got to list things together, and usually it’s not an inconsequential investment. I’m not saying it’s $50,000, though it could be, but it’s not $500 either. There’s an expense involved, and most firms will just say … How often do you a see firm say, “We want to increase brand relevance?”, if that’s the terminology they use, which I really like. They have no baseline. They have no idea how relevant they are right now, and then you put in front of them, “Why don’t we go measure that?”, nine times out of ten, or I should say 99 times out of 100, they don’t want to. They don’t want to put the money there, especially smaller, mid-sized firms. They don’t value that piece of data, back to your point of where our priorities lie.
Jeff McKay: Yeah. So, I would say I can measure that brand relevance without spending one additional penny.
Jason Mlicki: Okay. How are you going to do that?
Jeff McKay: I think there’s a very straightforward way giving marketing technology. Any firm that has a decent level marketing automation system is going to be able to measure IP and domain presence on their website. They’ll be able to narrow that down to certain area on the website. So, if I wanted to build the relevance of a given industry, for example, or a core capability among a certain type of client … Most of these prospects are pretty defined. We’re going after the Fortune 500 Pharma, or we’re going after Automotive Tier II OEMs. It’s very easy to identify those companies and then set up the analytics and marketing automation about who’s coming to the website. That’s just a simple zero cost measure of how we’re impacting around brand relevance.
To me, you would argue, “Well, that target is coming to our website and looking at these pages around this topic that we’ve chosen to build demand around.” We can cascade back from there very easy into what’s driving those website visitors to the site. Are they coming through social? Are they coming through direct mail? Are they coming through organic search? If so, where are they coming through? We can even see how they’re traveling through the website. It’s very easy to set up a baseline on that, make investment, and then see what happens. Now, is that incredibly sophisticated? No, but it is a hell of a lot more sophisticated than most organizations can do.
Jason Mlicki: Well, it’s better than nothing, certainly. I think there’s instances where it probably totally works, where a firm is consistently developing high quality IP, and self-publishing on their web property, and bringing potential clients to it. Unfortunately, there’s a lot of firms that don’t fit those three priorities … or are those priorities the wrong word, but those three characteristics. Maybe they don’t have substantive IP, or maybe they’re using less of a self-publish strategy and more of an external publish strategy.
So, there’s a lot of reasons that it could create blocks. I don’t want to tear down the idea, because I think the idea is absolutely spot-on is that, yeah, that’s one way to look at, “Are we relevant?” I think they are totally relevant, but the data in that model wouldn’t show it and you would have a blind spot, but that’s true of any research. I mean, there’s no research that’s infallible.
The more I think about this dialogue, I personally think it’s the wrong question. If a firm leader were to say to me, “How much should we invest in marketing?”, I don’t think it’s the right question, “What are we investing in.” I think more often than not, whatever the investment is, it could be more, it could be less, whatever, but are they investing in the right things? I think that’s probably where the mistakes are more likely made than in setting the right budget model.
Jeff McKay: Absolutely. I think that was the argument that I’m making in the optimal marketing organization. You really can’t invest unless you know what you’re trying to achieve, and then it’s very easy to invest. I just don’t think those questions ever get … They just don’t get asked. I can just imagine some marketer being asked that question and trying to answer it without asking a series of questions like you just did. Well, I don’t know. What are you trying to achieve? What’s the starting point? What’s the ending point? That’s just it.
Here’s what I want to say about the brand relevance example. No, you were spot-on. You started to identify the hurdles to the outcome, where I think what needs to be done is you need to identify the outcome and work backwards and eliminate those hurdles. So, you said you’re not going to build brand relevance unless you have a clear intellectual capital agenda in thought leadership with a point-of-view that’s going to get attention in a given market. I wouldn’t argue. That’s exactly right.
Well, if you have a culture that nobody produces that, or they don’t get rewarded for it, or they don’t think it’s important, that’s a different conversation to have with leadership versus that’s not a marketing decision or discussion, that’s a cultural one, or that’s a rewards based on. Now, it has tentacles into marketing, because marketing should be driving the growth, but if marketing tries to spend money and hit that metric but haven’t addressed all the issues that you have talked about, then they’re wasting money. So, they shouldn’t be spending the money until they’ve proven that they can get an ROI and they have a clear path to that ROI.
If they just gave it more money, more money’s not going to fix a culture that doesn’t value thought leadership, or doesn’t reward it, or doesn’t hire people of a caliber that can actually develop it. More marketing money’s not going to do any good. I’d say, “Take that money that you were going to give me for marketing and raise the salary of the people that we’re hiring or give it as a reward instead of giving it to marketing.” Every firm I’ve ever been at, I’m always willing to give 50 or 100 grand of my marketing budget to the consultant that put an article in HBR. “Take it. Here. I’ll give you a $100,000 as a bonus if you come up with a piece of thought leadership at the level of HBR.”
Jason Mlicki: How often did you write that check?
Jeff McKay: Never. Never. That’s just what the point is.
Jason Mlicki: Never, yeah.
Jeff McKay: Firms aren’t necessarily inclined to do that, and I think that’s a cultural dimension. I mean, a good thought leader would say, “I’ll take that. That’s gravy money.”
Jason Mlicki: Yeah, absolutely. I don’t think you would do this, but I think that it is the responsibility of the marketing department to give them a path to make that happen though, to help them develop the idea to grease the conversation with HBR to kind of create the situation for that to occur. I think the reality is, one criticism of that of course is that most of the subject matter experts wouldn’t have the faintest clue where to start, even though they might have something really compelling to say or how to even approach it.
Of course, you wouldn’t do that. I mean, you would have put them in a situation to be successful, but I bet that would be part of it is that I think marketing needs to then enable that to happen by the resources that enable great leadership to occur. So, if I were to sum up this whole conversation, I’m going to do this real quick, it’s just five percent. Right?
Jeff McKay: No.
Jason Mlicki: How much should you invest in marketing? Five percent.
Jeff McKay: You shouldn’t stop until you hit double digits.
Jason Mlicki: Okay, 12? 15? 20?
Jeff McKay: There you go. I think the conversation … I’ll sum it up this way. One, marketing needs to lead, not follow. You need to think like a business person, not like a traditional marcom person. You need to lead, and you need to address those operational issues that are getting in the way of strategic impact for marketing. Then I think the second is you have to be really clear about what is ROI and what are we trying to achieve, because I think a firm can build brand relevance, take market share, increase the lifetime value of a given client, but all those take time and they take some level of investment.
Where you plot on that X and Y axis is going to dictate what your budget spend is. You can make things happen a lot faster with a lot more, or you can save money, but it’s possible going to take longer. It’s a trade-off, and it has to be a longterm perspective. Most firms just think quarter-to-quarter or just what they need to hit their number to get their bonus.
Jason Mlicki: Really, it’s focus on your desired outcomes, and then build the marketing plan around that.
Jeff McKay: Yep, it’s that simple.
Jason Mlicki: All right, that simple. And spend more.