It wasn't so long ago when crafting a marketing budget was a simpler endeavor -- you contended with a range of print publications, radio/TV spots, and tradeshows. Those were the good old times, when it was easy to look your boss in the eye and guarantee your marketing spend would come in at budget because you bought as much media as you could with the money they gave you.
Nowadays, we are lucky to have performance-marketing channels like online advertising and affiliate marketing to lean on. As business shifts to the web, marketers have been given a wonderful gift: the ability to monitor the success of their programs down to each individual sale.
However, it still seems like performance marketing is creating a bigger set of headaches for CMOs and marketing managers, rather than making their lives easier.
For instance, performance marketing is harder to budget because it comes from a different cost center due to its cost-per-acquisition nature. So, payment comes after successful sales.
In addition, when things are trackable, it means that you can optimize and improve performance. Tracking and optimization take energy and dedication, and setting aside time to learn new programs like Google AdWords, Skimlinks, etc. It also means that you might find data suggesting things aren't going well.
Moreover, marketing managers are often told to "use their budget or lose it," and it's significantly more time consuming to manage performance-marketing budgets given the above, so some opt for the easy way out, which is avoidance.
While these are legitimate points, they can all be addressed with a proactive plan and clear discussions with your team on what you are looking to achieve. Don't be pulled off task by other daily demands of your attention. A marketing model that guarantees you only spend money if you are getting more money back should definitely be getting more of your attention.
Determine your goals and strategy for achieving them before breaking down your budget
Across industries, it's common to see an 80/20 split when it comes to budget allocation, with 80 percent reserved for brand marketing and the other 20 percent for performance-based activities like online advertising and affiliate marketing.
Following a set template might be a comfortable way to ease into the world of performance marketing, but is it the most effective?
Rather than follow arbitrary guidelines, step back and consider the marketing budget within the overall context of your company's goals and growth stage.
What are your company's primary objectives? Gaining market share? Demonstrating profitability pre-IPO? Acquiring new customers or retaining old ones? Building a strong brand? Most likely, it's some combination of the above that will vary based on the stage of growth your company is in, but determining your priorities is the first step.
After determining your company's top goals, it's time to assess if and how performance marketing can help you achieve your strategy for getting there. This will help determine if the 20/80 allocation is right for your business (it's probably not). There are a few common scenarios in which increasing the focus on performance marketing makes sense.
The growth phase
When you're just coming out of the gates, there's pressure to move products and develop a following. At this stage, turning up the dial on performance marketing drives lead generation. Without your own strong brand recognition, affiliates can help get your name and products out there.
In addition, performance marketing represents the best real-world focus group. With virtually immediate feedback, you can quickly see how you're being received in the marketplace. Play around with different offers and messages, and see what offers the greatest impact.
Bear in mind that at this stage, you'll need to work hard to convince affiliates to invest their time in you. Affiliates are driven by their returns, and you'll need to sweeten the deal with strong offers, enticing promotions, and higher commissions. Make sure to factor these costs into your ROI calculations.
Building your brand
Putting more resources behind performance marketing doesn't necessarily come at the expense of your branding efforts. Contrary to conventional wisdom, performance marketing can contribute to your overall branding, as affiliates represent your brand throughout the social web.
While there's always a fear of the "rogue affiliate" that weakens your brand with low-value practices, a little proactive management and monitoring go a long way to protecting your brand. Set strict promotional guidelines from the start, and continually monitor your affiliate partners to ensure they're complying.
As your company grows, the affiliate program takes on a whole new personality. When your company gathers momentum and your brand gains clout, you can expect and demand more from your affiliates. Recognizing the strength of your brand, affiliates will be willing to work with you for less and will be more conscientious in following your brand guidelines.
In short, the stronger your brand, the easier it will be to manage brand issues with your affiliates. Similarly, with online ads, the stronger the brand, the less compelling the discount needs to be. Especially in retail, it's always wise to have clear calls to action and incentives for people to buy now.
Supporting complex sales processes
Selling certain goods -- for example, B2B software or a high-end digital camera -- entails a more intricate sales process. With these types of sales, customers aren't going to be impulse buying, but doing their due diligence and weighing the options carefully.
If you really believe that customers are likely to settle on your product after evaluating the field, it makes sense to increase your performance-marketing budget (and if you don't believe it, it might make even more sense to increase).
Each affiliate impression or online ad is another signpost pointing the customer directly to you. Each click to your website will bring the customer that much closer to a final decision and purchase. It's said that humans need to hear things three times for it to resonate, and performance marketing is a great way to make that happen.
When your company's key goal is demonstrating profitability, either to shareholders or potential investors, your marketing approach and budget narrow. In this case, performance marketing plays a key role, as the return on marketing investment is more important than ever. By tying each cost to a specific action and/or end result, affiliate marketing offers less risk and lets you keep a close eye on what you actually get for each expense.
Performance marketing doesn't always fit neatly into traditional budget planning. There's a perceived unpredictability associated as costs vary month to month based on results. For this reason, marketing managers often play it safe and put less into affiliate marketing and online advertising than they should.
Ultimately, the best interests of the company should drive your spend and time allocation, not what fits into a neat little box. Anyone who's dealt with the "use it or lose it" budget rules at large companies understands the frustration when budgetary decisions seem to go against the grain of what's best for the company. Be proactive, and explain that you are budgeting in accordance with your marketing strategy, which is designed to help the company achieve its goals. If you were bootstrapping the company, and every dollar you spent was your own, would you still buy that TV ad?
Actual budgeting should come down to which efforts work for your business. By continually tracking your key performance indicator metrics, you can modify your budget allocations as needed. If performance marketing is performing well, more money should be allocated to fuel the momentum. If affiliate-marketing costs come under budget one month, there's no reason to arbitrarily pump more money in until you determine where you can be most effective.
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