Marketing Budget Chart: Is budget size the real challenge? Or is it how you allocate your budget?

This article was originally published in the MarketingSherpa email newsletter.

Budgets have been a perennial challenge for marketers of all types. In 2009, B2B marketers told us “doing ‘more with less’ — tight budgets and reduced resources” was the top marketing department pain point for B2B marketers.

But even as the economy got better, that pain point didn’t change. For example, in 2014, “size of marketing budget” was most challenging for companies’ ecommerce operations. And last year, “lack of budget” was the biggest challenge to omnichannel strategy.

We’ve tended to look at budgets through the microcosm of the marketing department. But recent data that came across my desk shows how the marketing department fares compared to other business teams.

“Marketing teams spend more than any other business unit,” said Patrick Whatman, Head of Content, Spendesk.

The above data is from Spend Trends Report 2019. Spendesk analyzed more than 800,000 business transactions totaling more than €120 million from over 1,000 companies headquartered in 35 European Union countries. Most of those companies were SMBs (small-to-medium businesses) with between 50 and 500 employees. The largest subset of companies is based in France, followed by the United Kingdom and Germany.

All data comes with a caveat — the sample may be very different than your organization. Your business may be smaller or bigger, or headquartered in the U.S. or Asia. It is only a small sample of all businesses in the world, and we are certainly not presenting it to you today as definitive proof that all marketing teams get more than other departments.

But it still brings up a provocative question: Why is budget size a perennial challenge for marketers? Is something really lacking in the core size of the marketing budget, or is it something different?

As you go through the budgeting season, I want to introduce you to the concept of hedonic adaptation.

Why a bigger budget isn’t the easy answer: Hedonic adaptation

“Well-Being: Foundations of Hedonic Psychology” by Daniel Kahneman contains the following definition from Shane Frederick and George Loewenstein. “Hedonic adaptation refers to a reduction in the affective intensity of favorable and unfavorable circumstances.”

I’m not a psychologist, but my layman explanation would be — we think good and bad things will change our outlook, that it is the circumstances that shape our view on how things are going.

But in reality, these changes tend not to change our happiness. Other than a temporary bump from a good or bad external event, we tend to be who we are. If anything, one could argue our worldview shapes our circumstances.

This process is also known as the hedonic treadmill. Because let’s say, for example, you come into more money. Your expectations and desires would likely also rise. It’s a never-ending cycle.

This is where marketing budgets come in and why I think marketers are always challenged by their budget sizes. You will get a bigger budget because your department takes on more. Rare is the organization that will give you a bigger budget with no greater expectations. And you will again feel challenged.

I’ve been through times of plenty and times of scarcity. There is always a challenge. And there is always an opportunity.

This isn’t to say that you shouldn’t advocate for a bigger budget or that there isn’t more your team should be doing. But it does suggest that the size of your marketing budget itself may not be the biggest challenge.

So how do you get off the treadmill? To overly simplify the budgeting process, if more doesn’t instantly equal better, if that isn’t the magic bullet … then what is?

Fine-tuning the marketing mix in the budget

For lack of a more nuanced explanation, better equals better. After all, the two basic levers you can pull when budgeting are more and better. So if more isn’t doing it for you, try better.

By better, I mean shifting your budget dollars and euros to their highest and best use. A dollar spent one place is not necessarily as effective as a dollar spent somewhere else.

This is an important task during “budget season,” but it is really an ongoing behavior in some ways. Some examples …

Example #1: Shifting from travel spending to conversion optimization investment

One thing Whatman mentioned from his research was “Spend on specific things including SaaS tools and travel are increasing.”

Could you, for example, move a series of meetings from in-person to virtual, and shift that travel budget to your conversion optimization budget? Would that give you a better ROI in your budget since it would be a multiplier on your advertising and media spends?

Flint McGlaughlin, CEO and Managing Director, MECLABS Institute (parent organization of MarketingSherpa), recently shared an experiment that resulted in a 66% reduction in cost-per-acquisition and a 302% increase in monthly profit to introduce a discussion of more versus better when it comes to budgeting.

In the session — Reprioritize Your Marketing Spend and Transform Your Results: Learn a radical new framework — McGlaughlin also shares a heuristic to help you prioritize your budget.

Example #2: Shifting from social media to SEO

Social media can have a short-term pop while SEO can have a longer-term impact. Where is your focus this year? Is it different than last year?

Here is how Joseph McClelland is changing the marketing mix at his small law firm, “We are increasing our marketing spend in search engine optimization while decreasing our spend on Facebook. Overall, our marketing spend will increase in the 4th quarter and in 2020.”

Example #3: Shifting from website development to website automation and client nurturing

If your business is new or you have launched a new brand, it can make sense to shift the budget as the brand matures. For example, in the beginning, it is essential to invest in website development to build the infrastructure of the business. Then, over time you shift that marketing spending with occasional peaks for website redesigns to ensure you continually have a high-converting website.

For the same reason, the percent of revenue you invest in marketing may decline over time as your revenue grows for the product line.

“For the last three years, I have reallocated my marketing budget from our website development to website automation and client nurturing. Our first year in business (2017), we spent 20% of our projected revenues on website and social media. In our second year, we spent 15% on automations and social. At the end of our third year, we will probably spend 5% on website development/maintenance and another 6% on social publishing,” said Jonathan Peyton, co-founder and wealth manager, Horizon Ridge Wealth Management.

Example #4: Shifting from offline to online

Many businesses have shifted budgets from offline to digital viewing online marketing investments on equal footing as more traditional offline advertising and marketing. But some small businesses still aren’t heavily invested enough in digital.

“As an exit planner, I work with other small business owners. As I review their marketing plans, I find more and more of them averaging 4-7% of their budget on marketing, but of that budget, only 1-2% are dedicated to digital marketing. I see a lot of opportunity for small businesses to better position their brands using digital marketing — they just don't know who to trust,” Peyton said.

Example #5: Shifting from internal resources to external resources

Don’t overlook how to get a better ROI from the salaries for your in-house team. Just because someone can do something, should they? Is there a better and higher use of their time that will ultimately drive a better ROI? What is the opportunity cost of how you direct your people resources?

“Treat your own time like money. Some companies are scared to invest in social advertising or in freelancers because they feel they already have the expertise in-house. So instead of putting $100 on Facebook to promote a blog post, they get team members to spend a day making a video to highlight what's inside,” Spendesk’s Whatman said.

“That might work brilliantly, but that person's time already costs far more than the $100 you turned down at the beginning. This doesn't mean that the video was a bad idea — just that it's not free because you already have a person under contract. There are hundreds of things we could all be doing, and every one of them costs us the chance to do the others,” he said.

Every challenge is an opportunity

I don’t mean this article to just be a pick-me-up during budget season, that your budget is big enough no matter what.

But hopefully it’s a good reminder of what the challenges really are, and where to focus budget time. Yes, get all the resources you can. But if the data is any guide, it won’t make you and your team feel any less challenged.

Seek to make the most of what you have. That is always a sure path to success.

Related Resources

Reprioritize Your Marketing Spend and Transform Your Results: Learn a radical new framework

Five Tips From a Personal Care Industry CEO for Setting (and Getting Approval for) Your Marketing Budget

Advice From Three Digital Marketing Experts on Building Your Budget