We’ve talked about governance and planning already… indeed, getting this right is like the foundations and frame of any secure building. And, to continue this analogy, financial matters are rather like the roof that sits over everything.
In this article we look at money and ask whether expenditure projections are set against reality, how we budget and forecast budgets, how we spend the annual budget (and how does this relate to plans), what proportion of expenditure is tactical versus personnel, and question the impact budget and money have on tactical performance and the delivery of KPIs.
A word of warning… this isn’t a 101 on how to manage budgets for marketing. Yes, there are some suggestions, but it’s a top-level guide to the sorts of things you might want to look out for in your audit.
What we’re looking for…
The biggest mistake marketing teams make is running budgets that have little or no link to strategic governance matters. That’s why this section isn’t so much about reviewing WHAT you’ve spent (and plan to) but WHY. We’ll explain.
As we’ve already mentioned, being able to report on marketing and demonstrate a link between money spent and instruction is is every marketeer’s ideal situation. While it might not be 100% possible 100% of the time budgets should be linked to your overall marketing strategy, through your tactical plan, and thereby your organisational strategy.
What this means is, in practical terms, is you do your budget planning the other way around. All too often budgets are set by allocating a certain amount for ‘types’ of activity (PR, events, SEO, PPC etc) without any real idea of what you plan to do, at that point. The best budgets, however, are created from the tactical marketing plan. So, you have worked out what you want to do to contribute to the marketing objectives and organisational goals… now you work out how much you need to budget to deliver each activity. Within each activity there may be expenditure across the marketing mix (which can be totted up under the previously mentioned ‘type’ categories if you wish) but you will be able to see a clear link between expenditure and that activity, and any resulting success.
Here’s an example. The organisational objective was to raise the chambers’ profile outside of London and to generate £x of instruction from regional firms (organisational strategy). An area for development was identified in agricultural law (marketing strategy). It was decided to run three breakfast briefings, in Herefordshire, Wiltshire and Somerset (tactical marketing plan). These would require marketing budget across events, email marketing, advertising, PR and content. Having looked at the budget a total sum for this area of focus was set and KPIs agreed on. The KPIs allowed us to track the marketing expenditure all the way through to the overall organisational strategy.
Questions to ask to review financial matters
So, we understand what we’re aiming for. Now we need to know how to review what you’re actually doing, in a logical and informative way, as well as identifying areas for development.
Here are some of the questions you might want to ask:
- How are budgets set? Are they mapped to reality (like the example above) or ‘finger in the air’? What needs to change?
- How is the budget divided down to show use of funds in different areas?
- How accurate is our forecasting and budget-setting? Are we regularly over- or under-spending?
- How do we monitor expenditure? Do we use codes that correspond to strategic plans/relevant areas? Do we monitor and check accuracy?
- What percentage of the budget is spent on different areas of the marketing mix? How does this percentage correspond to known enquiry generation sources?
- What percentage of the budget is spent on personnel within the team? And what percentage on outsourced support?
- How is expenditure agreed and approved?
- What’s our relationship with suppliers? Do we pay on time?
- How do we manage procurement and quotes?
- Do we measure the ROI from all expenditure? How is this reported? Do we know what works best and what doesn’t (average income per £ spent)?Do we ever change anything during the year because of this?
- How successful is our budgeting (planning and delivery)?
Why do we want to know all this?
We’ve been pretty clear about why we need to map budgets to plans and reporting – it just makes it simpler to demonstrate a ROI. But why do we need to know about what percentage of the budget is spent on different things? And why procurement and payment terms?
Let’s tackle percentages. Many consider this a bit of an old fashioned approach but looking at the percentage of revenue spent on marketing, by industry, can be interesting. It ranges from less than 1% through to 18% (individual companies can go as high as 46% in some B2C cases). Surprisingly (or perhaps not) there is relatively little that reports on the legal sector. A 2015 (yes, that’s right, nearly four years ago… and before some fairly hefty economic shifts…) survey by Macquarie Bank of 226 Australian firms highlighted how marketing budgets varied according to the size of firm:
|Size of firm by fee income||Percentage of fee income|
The industry standard ‘recommended’ amount has tended to hover around 4%… but let’s think about that for a moment. That would mean that a chambers bringing in £1.2m should be spending around £50k on marketing… and that doesn’t usually include salaries for marketing people… and while we’re at it… lots of chambers separate out client entertaining and marketing, so how does that work?
Our suggestion is to relax and to look at these figures as a guide rather than the law. Map them against performance to see whether increased marketing spend (or decreased) has had an impact on revenue, over time. Similarly, including salaries and expenses within your budget reporting can be a good way to assess the value that each person brings to achieving goals.
Finally, procurement and payment terms. Speaking as a relatively small supplier to a lot of global firms and organisations… we encourage anyone conducting a financial review to also look at how they treat suppliers, pay and procure services. Clients that pay on time, get a better deal. It’s as simple as that – there’s less risk to us. But also, having a rigorous procurement and quoting process, so you can measure performance (and project slip) against that and the end bill is also important. If you identify that you’re always over budget, for example, you might need to review how you brief projects or agree initial proposals.
Why are we doing this?
In many ways this financial section is the glue that sticks everything together – or rather, as we said, the roof on the frame. Money is a language that partners or exec committee members speak. Being able to explain how you’ve reached budget figures, what you propose to do and achieve with the money, and then (at the end) how successful you were at doing this is pretty powerful stuff for any marketing department.
In the next, final, article we talk about what to do with all this information. You’ve got data on governance, stakeholders, competitors and now money… it’s a lot of information. The important thing is to build a simple action plan for change and improvement.