Invest in marketing communications

The first question to ask is what costs you need to include in the communication budget. The published advertising budgets for the consumer sector cover almost exclusively above-the-line advertising. With B2B budgets this makes little sense because above-the-line advertising only accounts for a (limited) part of the overall communication budget.

In principle, the communication budget for all B2B projects include all external costs that are required for creating, executing, and producing different communication media. Salaries of the in-house marketing and communication staff are usually not included in the budget. Although this can change from one company to another. Some companies differentiate in their budgets between internal, external and corporate communications.

Advertisements for staff vacancies are often included in the Human Resources budget; annual reports come under Investor Relations or Corporate Communications; sales discounts belong in the sales costs column of the budget.

In short: what we are talking about here is exclusively the resources to be invested in marketing communications.

1. The communication budget as a percentage of the turnover

Wrong method

Quite a number of companies calculate their communicate budget as a percentage of the turnover. The advantage of this method is that it is very easy to apply and it is very clear. A generally quoted average throughout the industry is 2%. This figure veils of course large differences within the sector: from 0.3% in the airline industry to 15% in industrial mail order business.

Depending on your goals and your financial resources, you can also use the percentage applied by your competitor(s) or the sector benchmark, where they are known, as your departure point.

Increase turnover with strong communication

Although the percentage that you apply will (hopefully) be based on past experience, it remains in a certain sense, a fixed sum. This is the negative aspect of this type of budgeting: the turnover defines the communication budget. Whereas in fact it should be the other way round: the strength of your sales communications should provide you with increased turnover.

The percentage, therefore, should be calculated based on sales objectives for the following budget period, rather than on the achieved turnover from the previous period.

A purely financial line of approach, that we only mention as an oddity, is to define the communication budget as the final column on the overall budget sheet. In other words, whatever is left goes to advertising. A business approach that testifies to poor insight and lack of faith in the power of communication.

2. Task-related budgeting

Clear communication objectives

Working with task-related budgets is more difficult, but in principle, more fair. Communication media are viewed as tools to achieve turnover, to secure markets, to gain market share. You start by formulating clear communication objectives, based on sales and marketing objectives. Then you decide whichever communication media and actions are needed and finally you work out how much these will cost.

What is difficult – some say impossible – is to accurately estimate the resources that are needed in order to achieve the targets. It is an exercise that requires significant experience in marketing and communication. Moreover, once the budget has been established and confirmed in this way, there is nothing stopping you expressing this as a percentage of turnover or gross margin. This makes the budget easier to compare and easy to manage.

A launch budget is a good example of a task-related budget. When you want to launch a new product line onto the market, you need to put aside more resources and more creativity than for your normal ongoing business. For the latter you can probably make do with a maintenance budget, that only needs to ensure that your existing brand awareness, image and identity are maintained.

Strategic and tactical plan: foundation for communication budgets

In an ideal world, a serious strategic and tactical plan should be in place as the foundation for all communication budgets. These do not necessarily have to be sophisticated. Very often it is sufficient to use a checklist of the different media in order to arrive at a realistic budget. How much will you spend next year in advertising? How much are you putting aside for your web site(s)? How much for direct marketing? Will you be needing a new company presentation? What sales promotion campaigns have you planned?

Once you have planned all your estimates, don’t forget to apply the golden rules for effective budget management: put aside a reserve for unplanned opportunities and take note of the lessons of the past.

And now: submit that budget, and defend it tooth and nail!