By Tom Sandford on March 08, 2019

Setting your agency marketing budget: How much is too much?

Wouldn’t you like to know how much your competitors are spending on their marketing?

We’ll tell you. According to interviews with 16 of the UK’s leading agencies, the average is 5% of their target revenue.

But that’s not the whole story. How they arrive at their budget, what they spend it on, and how they organise expenditure varies from one agency to the next.

In this article, we peel back the curtains on the most important number in agency marketing – so you can judge whether your team is on-track or over-spending compared to the competition.

The average agency budget

So how much do UK agencies spend on their marketing?

The magic number for most of our interviewees is 5%, measured in terms of marketing as a % of sales.

There was some variation to this figure, of course – one agency aims for 7%; another between 5% and 10% – but what’s most striking about this trend is just how low our agencies marketing budgets are compared to businesses in other sectors.

Average marketing budgets top 18% of sales in education and 9% in service consulting. Our friends at The Marketing Centre – providers of part-time marketing directors – recommend marketing budgets of 4% to 8% for most B2B businesses. The agencies we spoke to all sat at the lower end of this bracket – suggesting that marketing teams at leading UK agencies are ready to do more with less.

Flexible, strategic budgeting

While 5% of target revenue was our contributors’ average budget, every agency we spoke to treated this figure flexibly.

Several agencies said they’d revisit their initial budget if high-value sales opportunities emerged that required them to break their initial budget. In this way, more than one of our interviewees referred to 5% as a ‘thumb-suck’ figure developed via trial-and-error.

Experimentation aside, our interviewees were clear that budgeting followed the development of their marketing plan – not the other way round.

“It’s not that useful to have a yearly budget and to spend that budget desperately at the end of the year,” says Yoyo Managing Director Jenny Kitchen. “Actually, it’s far better to look at every single piece of activity in context and ask ‘What’s the business case for this and what do we think we’ll get off the back of it?’ I want to completely – and we have – get away from having a fixed budget that we must spend. Everyone in our team is encouraged to think this way in terms of training, staff incentives and all other budgets across the business, about the business case for and against spending.”

Top-down, bottom-up budgeting

Brand storytelling agency Rooster Punk use a ‘top-down, bottom-up’ method to ensure a strategy-led marketing budget, as founder James Trezona explains:

“From the top, we’re asking ‘What’s our revenue? What’s our profit goal next year?’ Just looking at revenues can be rather misleading. You say, ‘Oh right, we’re going to hit £3 million next year, and we’re going to bring in £1.5 million of new clients, therefore we can spend a ton of money.’ Actually, I always recommend that teams set a benchmark for profitability – let’s call it 10%.

“We make it very explicit to people that if we’re spending this money, it’s out of our profit. It then becomes a much bigger percentage. If we’re going to make a profit this year of £250,000, we’ll give 10% of that to marketing. £25,000 is a big chunk of a profit.

“Thinking this way makes teams more serious about their marketing budget. The ‘bottom-up’ thinking requires us to ask ‘What activities do we want to run?’ Is £25,000 sensible if we need to rebuild the website, or if we want to produce videos and buy soundtracks, for example?

“We add up all the activities we want to do on quarterly basis and ask whether the budget is sensible. The goal is meet in the middle on a sensible figure.”

Phantom budgeting for creative teams

For the majority of the agencies we spoke to, their marketing budget included the salaries of their marketing team and the billable hours from their creatives.

To keep control of costs, many of the teams we spoke to operate a ‘phantom budget’ to manage billable time. Each marketing campaign  is handled like a client project, by assigning it a project manager and a project budget, and adding necessary creative time into the agency’s workflow.

Working in this way prevents internal marketing projects from losing priority behind client deliverables or taking excessive time to complete.

“Internal marketing is often pushed to bottom of the pile because, as you know, clients come first and that’s absolutely right, says Really B2B Marketing Director Gemma Roalf. “At the beginning of the year, I put my marketing plan and budget together to show our board what I need to achieve the results they want.

“We can have certain details be pushed back when the client departments are busy but ultimately, if it gets to a stage where we’re slipping behind, I tell the team what the impact will be if we don’t get things done. They can make a choice there of whether they're happy for that to be delayed or whether we should press forward.”

Agency spending on suppliers

Assigning an agency’s creative and development teams to work on the agency’s own marketing first appears sensible, saving the agency time, money and hassle.

Actually, the opposite is true. In our article on productivity and perfectionism, we showed how using creative teams can hinder the agency marketing process. That’s why many of the marketers we spoke to assign budgets to external suppliers and internal teams.

“An agency that’s willing to invest additional budget on suppliers rather than use internal resource will enable things to move ten times quicker,” says cxpartners Marketing Director Sarah Legge. “You’ve got somebody outside of the organisation that can’t be pulled onto client work, that can work directly with your marketing team to make quick design and development decisions, and move the project forward.”

Internal creative teams often find it difficult to achieve this pace, because of their emotional connection to the agency’s marketing, says Reflect Digital CEO Becky Simms.

Annual planning, quarterly adjustment

The majority of the agencies we spoke to set their marketing strategy and budget on an annual basis, reviewing both issues on a quarterly cycle.

The nature of these reviews varied from team to team. Innovation agency Rare Design, for example, keep a tight handle on their marketing costs using the same zero-based budgeting model as their clients. Reflect Digital review their marketing performance on a weekly basis, tweaking their marketing plans, and therefore their budget, accordingly.

Access to budgets also varied. Having defined their marketing budget at the start of the year, one agency we spoke to release this figure to their team incrementally over the next 12 months, according to whether the agency is on course to hit their revenue target. This sum includes individual client ’entertainment’ budgets, defined according to the amount each client is expected to spend with the agency over the year.

The challenge

Setting your agency’s marketing budget isn’t the difficult part; knowing what to do with it is.

That’s why the agencies we spoke to invest time in setting their priorities, laying down strategy and monitoring their success. These are the keys to an effective marketing budget.

Are you clear on what your agency’s marketing budget needs to achieve this year?

Image via Unsplash;

Published by Tom Sandford March 8, 2019