While the global economy continues its very slow climb out of recession, one of the questions we often get, and indeed one which clients often struggle with, is: what is the right amount we should be budgeting for our communications activities?
This is always one of the most difficult questions to answer, but it is also one of the most critical. While it may sound self-serving, history shows organisations that increase their budgets in times of economic uncertainty position themselves for increased growth once the economy begins to pick up momentum. Of course, there are many factors that play into this, but the general rule of thumb is B2C companies should be spending between six per cent and 12 percent of revenues on communications and brand while B2B companies should be spending between two and six percent.
History shows organisations that increase their budgets and presence during difficult economic times position themselves ahead of the curve once the overall economy begins to pick up momentum.
The recession of the late 80s/early 90s in the US was deep and widespread, somewhat matching the current economic situation. As noted by the brand valuation and research firm, Interbrand, during the 1988-1992 economic slowdown Nike increased its marketing by more than 300 percent (remember the Just Do It! campaign?). As a result, Nike increased its profits by a factor of nine during this time-period and stole market share by the handfuls from other shoe and sports apparel companies. Look at Nike today – the bedrock of their global dominance can be traced back to that strategic decision nearly 25 years ago.
This mindset is supported by the Profit Impact of Market Strategy (PIMS) study of 1998, which found companies that increased their marketing budgets during the recession of 1988-92 realised an ROI of 4.3 percent. While that may not sound like much, it compares favourably to the returns of companies who merely maintained their budgets or even decreased them (0.6 percent and 0.8 percent respectively).
So where do you stand? For a comparison, we offer the most recent Chief Marketing Officer (CMO) Council Report, which showed 33 percent of US companies invested 3-5 percent of revenues on communications (includes tradeshows, advertising, public relations, brand management, brand licensing, direct marketing, social media and research), 16 percent spent between 5-6 percent of revenue and 23 percent spent more than six percent of company revenue on marketing communications.