Mark Ritson: Are you a smart or a SOOMA budget setter?

There are two ways to come up with your marketing budget for 2015. There is the stupid way and there is the smart way.

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Let me review both options for you because, as we enter June, those of you who do it smartly and work to a January-to-December planning year are literally starting the process as we speak. If you set budgets the stupid way, you have nothing to worry about for another four months.

Stupid marketers let the finance department set their budget. They arse about with tactical stuff until mid-September, when they are issued with the expectations for 2015.

So, for example, the finance team might instruct the marketing department that next year they are expected to grow top-line revenues by 7 per cent and achieve sales of £75m. They are also told that their marketing budget for the year ahead will be £3m based on the 4 per cent advertising-to-sales ratios that the company uses to derive marketing budgets.

It can look deceptively logical until you look at where these numbers come from. As one of my favourite clients likes to put it – they all derive from the SOOMA Database – SOOMA standing for Straight Out Of My Arse.

The 7 per cent growth rate isn’t based on strategy or research. It comes from arbitrary growth expectations that your board or global team have applied to your business, irrespective of the fact that they have seen no data and probably not even visited your market in years.

The 4 per cent ratio of revenue to marketing spend is doubly stupid. First, because it is another completely arbitrary number (why not 10 per cent, or 2 per cent?) that senior managers deem acceptable. Second, because this ratio is applied after the £75m revenue expectation has already been set, it is clearly derived from a belief that marketing is not an investment that can increase revenues but rather a cost that we must pay each year, irrespective of sales.

The serious point about all this is that when a company sets a budget for 2015 this way, all strategy dies. Any serious marketer will realise that if the numbers and the investment levels are already in place long before they have even looked at research or strategy for the year ahead, he or she is literally pointless. The joke is on any and every marketer that accepts these bullshit budgets and works within their parameters for a whole year of their life.

It does not have to be this way. The smart way to build a marketing budget does not start top-down with the senior finance team but rather begins bottom-up with the marketing department.

The financial plan for a calendar year will always be set between September and October, so it’s crucial that marketers don’t wait for a moronic number but rather start working on their proposed 2015 strategy now.

That might sound early, because it is. But if you don’t get the strategy in before the budgets are set in September, you will be lost in stupid-land like everybody else.

A smart marketer collects research in June and July. They build and populate their segmentation. They decide on their targets for 2015 and then, crucially, decide on their objectives for each segment. Here you will note that I am not talking about the flaccid, open-ended objectives that populate most firms. You know the type – “Improve brand sentiment among young adults”. I am talking about SMART objectives you can hang your hat on and pay bonuses on – “Increase brand preference among the ‘Out to Lunch’ segment from 29 per cent to 65 per cent by 1 December 2015”.

Once you set a real objective, you can work out what it’s worth. Annualise the figure for 2015 and go and brief your agencies. Share the objectives with them and ask them to come back with tactics and associated costs. Put all that together and you have a bottom-up, strategic budget to propose to top management. You can propose how much money you need and how much money you can generate in the year ahead.

Or you can sit on your arse monitoring how many followers you have on Twitter for another four months until some idiot from finance looks at a line chart for 10 minutes and tells you what to achieve.

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