Budgeting in Tough Times

By George Foster, CEO, Foster Marketing 

October isn’t just the start of another hunting season; it’s also the start of the 2010 budgeting season. And, never has it been harder to plan for the future when you don’t know what the future holds.

It reminds me of the story about the man who sold hot dogs on the corner. The man was hard of hearing, so he had no radio. And, he had trouble with his eyes so he didn’t watch TV or read newspapers. But he sold good hot dogs.

He put up signs on the street telling how good they were and stood out on the corner and cried: “Buy a hot dog, Mister?” And people bought.

He bought a bigger stove, increased his meat and bun orders and eventually asked his son to come home from college to help him run the business. But then something happened.

His son said, “Dad, haven’t you been listening to the radio or reading the newspaper? There’s a big depression. The world situation is terrible. The domestic situation is worse.”

Whereupon the father thought: “Well, my son’s been to college, he reads the newspapers and watches TV so he ought to know.”

So the father cut down on his meat and bun orders, took down his advertising signs and no longer bothered to stand on the corner to sell his hot dogs. And his hot dog sales fell almost overnight.

“You’re right son,” the father said to the young man. “We certainly are in the middle of a great depression.”

No one plans to fail, but many times we fail to plan. Cutting marketing and advertising budgets in tough times is a recipe for failure.

There are a number of different methods used to establish budgets. Designating a percentage of sales is a common method, and studies have been done on what companies spend in various SIC codes on advertising as a percentage of sales and percentage of margin.

Another method, and the one we prefer, is the task method budget where tasks are budgeted to reach marketing objectives. More than ever, marketers are being held accountable for results.

Studies through the years have proven that a predictable percentage of buyers exist in every group of leads generated by a communication program. We have to know there are buyers out there, or why would we market at all?

When you can forecast the expected return on promotional investment (ROPI) for six-month and one-year periods, upper management looks at marketing communications in a whole new light. Marketing communications expenditures then become an essential cost, not a supplemental cost that is cut easily.

The rules for ROPI are simple: 22%, or slightly more, of inquirers will buy within six months — from you or your competition; around 45% of them will buy within one year.

Prove it to yourself: Telephone 100 leads you received one year ago. Within about five percentage points, the prediction will hold true. Call leads after six months, and most likely, 22% to 25% will have bought.

One of the toughest tasks in today’s information world is determining the best vehicle to reach your prospects. There are a lot more vehicles today than the few available to the hot dog salesman, some with minimal hard cost but a large amount of human cost (screaming from the corner), such as social media.

At a recent online marketing conference, speaker Joel Book (http://www.exacttarget.com) displayed a slide that showed the progressive growth of media vehicles over 20 years, from basically four media outlets — TV, radio, print and outdoor — in 1990 to the proliferation of media we have today. The medium is the message as Marshall McLuhan said years ago.

So, what’s a marketer to do when developing a marketing communications plan and budget? You can certainly wade through the myriad forms of media and cobble together a budget, or you can develop a strategic plan with achievable goals. Foster Marketing Communications has 30 years of experience helping clients budget and build their business. We can help you, too.