Sunday, September 26, 2010

How much should you be spending?

Your marketing strategy?
Here’s an question sure to start an argument at your Non-Profit. Gather people around and innocently ask them what their organization should be spending on marketing and communications next year. Then stand back and wait for the fireworks to begin.

In and out of your organization there are those who believe that spending at a Non-Profit, and especially a charity, should be on services. The idea of spending on marketing offends them. Then there are those who believe that while marketing and communications is important, it should be held to the bare minimum. For them, this function has limited value. This is partly due to the fact that many of them don’t understand it and partly because they have seen such terrible marketing efforts in the past that they have very low expectations. And finally, there are those who understand marketing and want to use it, but can’t find the money to do it properly (mostly because of the others mentioned above).

Now, some sobering statistics to add fuel to the fire. According to a 2008 study by the American Marketing Association and Lipman Hearne, most Non-Profits with budgets under $5 million spent less than $50,000 on marketing and communications. And of those with operating budgets between $5 million and $20 million a third still spent less than $50,000. The study concluded that half of those Non-Profits polled had less than $100,000 in their marketing budgets.

While the study found that overall marketing budgets were typically 2% to 3% of the organization’s overall operating budget there was in fact great variation in spending. For example, more than half of Non-Profits in social service, health and advocacy with operating budgets between $5 million and $20 million had marketing budgets under 1%. And a third of those under $5 million in operating spending had marketing budgets of between 5% and 7%. In short, the averages didn’t tell the story. Non-Profit marketing spending is all over the map.

It would be nice to find a benchmark for your organization. For example, in some retail markets there are very reliable figures. A marketing budget of 10% of sales is not uncommon. Benchmarks for Non-Profit marketing aren’t exactly reliable. For example, I’ve seen some in the hospital field and they were useless.

So where does that leave your Non-Profit?

Here’s how you should do it. For lack of a better number, start at the 2%-3% level. Then, think about what that gives you. For example, on an operating budget of $150,000 that’ll give you a marketing program of between $3,000 and $4,500. You don’t have to be a rocket scientist to know that kind of spending doesn’t amount to much. An ad, a mailing, a new website, some signs and the budget is gone. However, if your operating budget is $1,000,000, your marketing program would be between $20,000 and $30,000. That is more manageable.

Now, add a new level to your marketing budget deliberation – value. Ask yourself what you’re actually getting for that spending. Is it enough to get the job done? With the $150,000 example above, the answer is obviously “no”. If you answer in the negative, follow up by asking what would it take to get to where you want to be. This will make you think critically about what kinds of marketing you need and how to get them. Don’t be afraid to spend more than 3% if it will give the value you want. But of course, the more you spend, the more of a target your marketing budget will be for those who “poo poo” on all marketing and communications. Be prepared to justify yourself.

One thing that will help you in all of this is adequate metrics. Your deliberations about value won’t mean anything if you don’t know what exactly it will give you. More on that in future blogs.

At the end of the day, you need to be flexible. Marketing is an investment. Some years, you will need more, others less. Keep your eyes on the prize, not the costs!

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