How do brands determine how much to spend on digital?

I'll admit, I suggested this exact topic to the iMedia Brand Summit content team for purely selfish reasons. I wanted to get some insight into how some of the brands did their budget allocations, and I wanted some of the sellers there to get some insight into the topic as well.

Why? Because throughout the course of my marketing and advertising career, no two clients of mine have allocated digital budgets in exactly the same way. 

Why does this matter? Individual marketing and advertising programs can live or die depending on the process of how budgets are allocated, approved, and modified over the course of the year. The subtleties of how a particular company allocates budgets ultimately have tremendous influence over strategies, tactics, and roles for particular marketing partners.

Unless you're a part of the budget allocation process, seeing what gets approved and what gets cut can seem strange or even schizophrenic. Digital programs can be funded from several budget areas within a marketing organization, some with their own predetermined roles for digital media and marketing. Where the money is coming from can be quite influential over the objectives, strategies, and tactics of a proposed program.

Underscore's best client relationships thus tend to be ones where the client will let us play a role in the budgeting process. Many of our clients ask us, "How much should we be spending in digital in order to get to 'Business Objective A' this year?" For those clients, we have a specific process that we can recommend, once it's been tweaked to fit within existing client processes.

But as I said, budget allocation processes are like snowflakes -- no two are exactly alike. That's why I found it valuable to sit at a roundtable discussion with folks like Ted Moon from Capital One, and Gordon Paddison, formerly of New Line Cinema. Obviously, their processes are proprietary, but they shared what they could.

After the roundtable discussion, I looped back with a few other roundtable groups at the summit who were discussing the same topic. I was glad to hear that the sellers and the brands learned new things that they'll take back to their respective organizations after the summit. Some interesting takeaways of mine from the digital budget allocation discussions included:

1. Some companies have a tough time putting a stake in the ground with respect to dollar amounts, so they first develop placeholder budgets by performing basic calculations that many of us might consider to be "back of the napkin." For instance, if a marketer wants to acquire a million new customers via digital channels over the course of a year, he'll try to get to an "all in" cost-per-acquisition number that includes all media costs, productions costs, agency fees and anything else he can think of. It will provide a starting point for the process.
2. Other companies will ask their agency partners for help in order to get to a starting point. However, some of the people I talked to expressed concern that agency numbers have to be taken down significantly, owing to any built-in biases they might have (commission-based compensation, discipline bias, etc.)
3. The most dreaded part of the process for most marketers involves taking the numbers to finance for approval. I heard a lot about difficulties communicating the subtleties of the marketing side of the business to people within finance or procurement.
4. Another problematic part of the process involved specific tactics coming up in the mainstream media, which may cause finance or executive management to question tactics without having a clear view of the objectives and strategies specific to digital. We spent some time talking about the dreaded "GMOOT Syndrome." (Get Me One Of Those) There was some frustration expressed around the notion that the best tactics aren't always the uber-trends discussed on the front page of The Wall Street Journal.
5. Several departments or marketing disciplines may be contributing to the overall digital budget, depending on how many roles digital can fulfill. Thus, money might be coming from direct marketing, brand advertising, ecommerce, or even IT. Sometimes that money comes with specific baggage, like preferred strategies and tactics. This can influence what the specific programs look like in the end.

The biggest takeaway for me, though, was that I confirmed the notion that different companies will have radically different processes for digital budget allocation (or even no formal process at all). Part of developing a long-term relationship with a marketer, then, can depend in part on an agency’s involvement with and contribution to that process.

Tom Hespos is the president of Underscore Marketing and blogs at Hespos.com.