Wednesday, September 28, 2011

The 3% Give or Take Benchmark

One of the biggest challenges non-profits have is finding a benchmark for budgeting their marketing and communications activities. None exist. That’s why many non-profits underfund or inconsistently fund their marketing and communications operations.

The 3% Give or Take Budget Benchmark is designed to give non-profits the information they need to benchmark their marketing and communications budget. It is simple, flexible and easy to use. It is admittedly not the most sophisticated of benchmark systems. Some may find it to be simplistic and argue that a more complex approach is needed. That may be true. However, this benchmark has advantages. It is applicable to almost every kind of non-profit, large or small. Being simple and flexible makes it more usable, and that will be welcome news to the many non-profits that have neither the time or the skills to do anything more complicated. And, at the end of the day, The 3% Give or Take Budget Benchmark is one of the only budget systems of its kind available. If it is better than nothing, than that is a step in the right direction because there is nothing else.

This benchmark won’t solve all the challenges of making a non-profit marketing and communications budget but it will give organizations a great place to start. The hard work of making a budget still rests with non-profit organizations themselves. Ultimately, it is our hope that this benchmark will foster more discussion and argument about marketing and communications in the non-profit sector.

The benchmark starts with a percentage. Budgeting can be done many ways, but one of the best methods from the for-profit world is to peg marketing costs at a percentage of sales. This has many advantages. First, it will vary with changes in the organization’s operations – when sales are down, the marketing budget will also drop and vice versa. It effectively makes marketing “affordable”. Second, it ties marketing and communications to the overall effort of the organization. Too many times, non-profit leaders fail to see the direct relationship. This approach will make it clear what marketing and communications does. In many non-profits there are no “sales”. There is operating income from funders and governments or there is fundraising revenue or a mixture of both. To make things simple, the percentage used here should be the non-profit’s total operating budget. However the money is raised, a non-profit’s operating budget is its “sales”.

What percentage should be used? In the for-profit world, this is often a very easy question to answer. The Chief Marketing Officer Council did a survey in 2007. It found that 16% of for-profit companies spent between 5-6% of revenue on marketing and 23% spent over 6%. It also found that businesses introducing new consumer products sometimes spend as much as 20% of sales on marketing. Another study by Go-to-Market Strategies found 30% of companies spent between 3-5% of revenue on marketing, with 45% spending over 6%.

It is tempting to think that the non-profit world’s marketing and communications budgets should mirror the for-profit world. A case can be made that in fact non-profits need to spend more than for-profits on marketing, not less. However, everything points to the fact that the sector would have little appetite for such a radical increase. The best study on this issue is the 2008 study by the American Marketing Association and Lipman Hearne which found that the average non-profit marketing budget was between 2% and 3% of the total operating budget.

For all these reasons, this benchmark uses a percentage of 3% of the operating budget. This benchmark is called 3% Give or Take for a reason. Three per cent is about right. Arguments can be made for spending less or spending more. In fact, we wish it could be significantly more, but that is not where the sector wants to go. In absence of any better data 3% is the best choice and the one that makes the most sense to us based on our experience and that of many of our clients.

So, if a charity had an operating budget of $500,000 its base marketing and communications budget would be $15,000. If it had an operating budget of $5 million, it would be $150,000.

The flexibility of this benchmark comes after the base budget percentages have been set. Here, non-profits can customize their budgets by adding or subtracting percentage points to reflect their situation. For example, if there is a need for more resources, they will add percentage points to the base. Let’s say a charity in a small market has begun to face more local competition for donations. They could add 1% to the base budget to compensate for the competition. Likewise, if the organization has no competition or is facing a drop in competition, it could take 1% away from the budget.

The result of the subtraction and addition will be your final budget benchmark number. For example, if your final equation is 7% and your operating budget is $500,00, then the marketing and communications budget benchmark for the year will be $35,000.

The 3% Give or Take Budget Benchmark has limitations. First and foremost, it works better in small and medium-sized non-profits than in larger, better resourced organizations. This benchmark system is really designed for non-profit leaders who aren’t marketing and communications professionals.


Monday, September 19, 2011

No one knows how to create a non-profit marketing and communications budget

The truth about budgeting for non-profit marketing and communications is that no one knows how to do it. There are plenty of people who say they do. There are also those who claim to have a method. Some of them even say they base their method on some kind of benchmark. Take my advice and take everything those people say and use it as kitty litter. It's worth that much.

I've been looking for a method, approach, benchmark, system or religious experience that would define non-profit marketing and communications budgeting for more than three years and I haven't found one that makes any sense. And, considering the subject, that isn't surprising.

The problem is that no two non-profits are the same. Many do similar work and have similar marketing requirements (such as fundraising support). But there are always key differences. Non-profit local markets are notoriously different from each other. Many organizations are structured very differently. There’s also a wide variety of input and output levels – some charities can raise more money with fewer donors. And finally, the sector is in fact made up of a host of very tiny sub-sectors.

That's not the case in retail, where marketing budgets are virtually a science. Most big chain retailers know exactly what their competitors spend on marketing because that information is available through research companies. Compare that to non-profits. In our sector, there are no organizations that are tracking what we spend and how we spend it on marketing and communications.

And even if such an organization existed, what would they tell us? Likely, they would show that marketing and communications spending across the sector is a dog's breakfast. The 2008 study by the American Marketing Association and Lipman Hearne found that budgets were all over the place. The average they came up with (2-3% of operating budgets) was so crude it was almost useless. Tracking what other non-profits spend in hopes of finding a benchmark will only tell you that you don't want to benchmark against them.

One of the reasons why marketing and communications spending is weaving all over the road like a drunk driver is that many non-profits have been chopping their budgets. Marketing and communications has always been the first thing to go when times get tough and that has created feast or famine approach that means many non-profits have money to spend on things like a new website one year and the next they have nothing.

This is also a problem for another reason -- many non-profit budgets are based on precedence. That is, the budget is formulated based on the budget from the year before. While this does wonders for consistency, it simply locks in the ups and downs in previous budgets. Bad budgets become even worse as time goes on.

There are other problems that cloud the issue even further. Too often, budgets are based on tools, not strategies. An ad costs this, a website costs that, and so on. To be most effective, a marketing and communications budget has to be tied very closely with a strategic framework, and for many non-profits that's missing. So, that's the reason why many budgets look like a grocery list.

And it also explains why the sector has such a hard time trying to achieve the zenith of budgeting -- predicting outcomes instead of just costs. The place where a non-profit really should go is not costing out to the Euro, Loonie or Greenback how much they will spend in stationery this year. No, what they should be figuring out what kind of outcomes their budget will be buying this year. The budget should say how much value your non-profit is going to get from your marketing and communications. This is somewhat common in retail and manufacturing where businesses link marketing directly to the value chain that starts with product creation and ends with the sale. Our sector can't use the same kind of formula because we don't make widgets. We sell ideas that people can believe in or services that give hope. Typical value chain economics don't work. But the idea is still sound. Our budgets do need to predict what their impact will be.

This brings up perhaps the biggest political problem in marketing and communications budgeting -- making the case for funding to the non-profit leadership. The long and the short of it is that too many leaders think that marketing and communications is not a line function. They see it as something secondary. Part of this surely has to come from the budgeting process. If, as I suspect, most budgets don't show the value marketing and communications creates then this situation will never change and these functions will always be one heartbeat away from the chopping block.

A final challenge is change. We’re in the midst of the greatest revolution in marketing and communications in history, but you would never know it by looking at non-profit budgets and plans. In the next decade, we will see massive amounts of change that will make much of our current non-profit marketing and communications offerings redundant. Print materials will fade away. Websites will need to be much more functional and powerful. Everything and everyone will be online. Most donors and supporters will be mobile. There will be more choice than ever and more competition. More than ever, there will be a need to build a marketing and communications system that reaches stakeholders effectively and easily. These changes need to be planned for now and, in some ways, they even need to be budgeted for now. You can’t buy the future, but you can invest in the things that will get you there. And that is what is missing in most non-profit marketing and communications budgets.

So, where do you go from here? Join me next week when I unveil my approach to non-profit marketing and communications budgeting.

Wednesday, September 7, 2011

Can you ditch Print?

As budget season approaches many non-profit communicators are looking for ways to save money and still deliver value. Every year, they have searched in vain for the magic bullet that will do this cleanly and without pain, and they have been disappointed. This year, something has changed.

We're at a place and time where technology is changing everything. Over the past several years everything and everyone has slowly been moving online. For years we have asked the question about print vs. online. Is print dead? Can it be replaced with online? Up until now, my answer has been no. I've argued that print still had life in the multi-channel world and would continue to do so, even if the future was clearly an online one.

My thinking has changed. I still believe print has a role, but I'm convinced that many non-profits can do what a few years ago would have been unthinkable. They can ditch their print materials. They can replace them with online equivalents. And they can do so in some cases with only a minor loss of distribution and a great deal of savings. Print may not be dead, but the time has come to realize that some non-profit organizations can not effectively operate without it.

This is a hard thing for me to say since I cut my teeth on print communications early in my career. I was a print journalist. I was a creative lead at a print ad agency. I pushed a lot of paper, and it did sterling service for me and my masters.

My change in thinking has come with the realization that the technology that is changing our world is in fact changing us, too. We aren't the same as we used to be just a few years ago. I now have a smart phone that lets me go online from whereever I am. I go online to get my software -- email, data, and others -- rather than use resident software. I am better connected to clients, friends and family through social media than I was ever before. The technology I use has changed, but I have changed. The idea of sending a letter, reading a newspaper or opening a piece of junk mail all seem foreign to me now. I don't watch as much TV. I hardly listen to radio. My banking is online. My entertainment is, too. And it's not just me. Recent research shows that for the first time half all US adults are now using social media. Mail volumes in Canada have been dropping for four years straight.

And the communicator in me has changed, too. I am awash in online measurment that can tell me so much about how effective my communications are. The inability of print communications to do the same shocks me more and more each day.

Does print communications still make sense? For some of us, the answer will always be yes because of the nature of their marketplace. But for many, the answer is no. We've turned a corner. We can now replace our print newsletters with email versions. We can now publish our annual report online. We can send out email invitations instead of print ones. We don't need glossy brochures or fancy sales sheets -- it's all better online.

For many, the main stumbling block will be direct mail. Here, the numbers still show print is the best money-maker. But the seeds of direct mail's doom are being sown in every mailing. With response rates of under ten percent in many mailings, charities are by definition flooding mailboxes with unwanted junk. With mail volumes dropping, that means that most of what now comes in the mail is now direct mail marketing and is seen by most people as junk mail. Email and social media have spoiled us. We have embraced the persmission-based anti-spam laws and internet browsers that let us turn off the tap of unwanted online communications, and yet we must endure junk mail again and again, making us more and more numb to mailings and their content. Every piece of direct mail ultimately is contributing to its downfall. And I sense that will be sooner than we think.

The old arguments for print will likely be made again. Not everyone is online, they will say. Online will deliver far fewer numbers. Both are true, but both are also becoming more meaningless every day. Yes, not everyone will get our email or social media, but the numbers who do not will be in the minority and are shrinking fast. Yes, email newslettter circulation will likely be far less than the optimistic print circulation numbers we have been using, but they will be more accurate and true.

So, I say it is time to be bold in this year's budget and take the plunge. Reduce or even eliminate print communications. You'll likely save money, get better measurement and a stronger, integrated communications program.