Budging the Budget

(or why your media budget needs to be scientific and data-driven)

Historically, media budgets are set by precedent.

At some point, in a brand’s history, they were set as a percentage of sales, typically 1-2%. Then media budgets become Michelangeloesque, namely carved in stone, beautiful and immutable.

Clients budget the same amount every year or grow their budgets slightly if they have a sales growth target. As many product categories saturate, the growth in their media budgets plateaus.

So far, so classical.

CFOs would sleep soundly knowing that advertising has been pigeon-holed and is a planned cost that is under control. Conversely, CEOs would stay up late wondering how they would hit growth targets.

The situation gets exacerbated with the “new nightmare” of digitization. With the rise of digital marketing and e-commerce, the paradigm must change.

If you spend more, could you get more sales? Would it drive more brand affinity? Does greater brand engagement translate into more cash in the bank? Is digital marketing a measurable lever that can produce business returns?

… IF YOU ARE A CMO, DO YOU KNOW WHAT YOU COULD ACHIEVE IF YOU SPENT ANOTHER RM 3 MILLION OR RM 5 MILLION ON MEDIA FOR ADVERTISING?

Ad investment and its relationship to sales can be measured and tracked, using data science. However, 95% of brands are not being scientific today in this process. They are stuck in classical aka prehistoric, precedent-based approaches to budget setting and forecasting. 

Why are brands like Foodpanda in the top 10 advertisers today? Because they know more ad spends translates into more sales, and are investing accordingly.

You can argue that food delivery has skyrocketed in the pandemic, but what about groceries?

And what about banks? And FMCGs?

Many mid-sized advertisers have failed to spot the opportunity: advertising is not a cost but an investment that can bring sales and scale.

If you are a CMO, do you know what you could achieve if you spent another RM 3 million or Rm 5 million on media for advertising? 

Can the flotilla of agencies you work with help you build a solid business case to spend through the pandemic recovery?

And if you are given that budget, can you drive the requisite Return on Marketing Investment?

These are the burning questions that today’s marketers should tackle.

… THESE CHESTNUTS BELONG IN THE SAME MUSEUM AS OUTDATED METHODS OF BUDGET SETTING…

In order to achieve growth, here are some simple steps to follow:

Analyze your sales and advertising data with the help of a data scientist, to establish a model of spend vs sales. Techniques like Market Mix Modelling have existed for decades and are now quite evolved and nuanced. More companies need to use these.

Create a business case based on modelling, and then sell that to the decision-makers to ask for bigger budgets.

Execute with an eye for detail.

Refine projections and forecasts in agile fashion as you go along.

Rinse and repeat the process during budget setting for next year.

Marketing does not need to be the department that spends ad budgets without knowing its effectiveness. A data-driven approach to budgeting and growth will help solve the old chestnut about “not knowing which half of my advertising budget I am wasting”. These chestnuts belong in the same museum as outdated methods of budget setting.

Sandeep Joseph is the CEO and co-founder of Ampersand Advisory, a strategic media consultancy that was Campaign Magazine’s Malaysia Independent Agency of the Year (2019,2020). The views expressed here are the author’s own: you can debate with him at [email protected]

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