What proportion of your marketing budget should you allocate? Under-funding is just as damaging as over-spending, here's the essential business-focused detail
What proportion of your marketing budget should you allocate? Under-funding is just as damaging as over-spending, here's the essential business-focused detail
Under-funding will damage business credibility with cheap'n'cheerful production values. Over-spending will impact the bank balance whilst delivering no additional Return On Investment.
The burning question is, how do you maximise ROI and spend the right amount? Here's the essential business-focused rule-of thumb.
One thing's for sure, in businesses in all sectors and of all sizes, nobody has as much money to spend as they would like.
We could all do with adding a zero on the end of whatever number is on the bank statement… wouldn’t that be nice! The reality is, businesses don’t have endless cash and getting a video produced can seem like it’s going to eat a big chunk of money.
If you approach several video production companies and ask how much does a video cost?, you'll get different answers as follows:
This is usually interpreted as “How much can we charge you, we’ll charge you as much as you’ve got”.
Of course 'What's your budget?' is a perfectly sensible response. Finding out if a budget has been set already helps pin down what kind of work can be done. You can ask a production company to produce Star Wars but if your budget is £500, we need to think again.
We go into some detail on why any response which has a fixed price attached to it should set alarm bells ringing in our article “How to avoid being ripped-off by a video production company”. The amount ultimately spent may indeed be one of those figures but nobody can know that unless the video has been carefully defined.
This may at first seem to be the least helpful answer you’ll receive, but it’s the most accurate. There are many elements which contribute to the cost of producing a video.
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Many businesses ask for quotes from several production companies, without a hard and fast idea of what is required or what will be delivered (the product).
They'll get different prices quoted, with different concepts or ideas attached to those costs. Both sides of the equation are variables: cost and product. You end up trying to compare apples with oranges which never leads to an informed decision.
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Either: Carefully and precisely define what is required and find the cheapest production company able to do it, - OR - define the budget then ask production companies what can be achieved for that budget. Either approach can work, but not both at once.
It can feel like a bit of a catch 22 situation sometimes. How do you know how much to spend, before you know what you can have? And vice versa.
As a (very) general rule-of-thumb, businesses should allocate around 10% of turnover to marketing budget.
This can vary wildly of course, depending on the business, marketing strategy and marketing plan. A company wanting to advertise and expand will probably need to spend a significantly higher proportion of turnover than a business which relies solely on newspaper advertising (eg. a local trades business, Plumbers, Electricians etc.)
Video is just one of the things that the total 'Marketing Budget' of 10% must cover, so again, thought must be given to exactly what counts as marketing activity in your particular circumstances. Networking, offline advertising (newspapers, radio etc.), website creation, posters, business cards, trade shows, online advertising, all should be taken into account. Let’s not forget that many such activities have hidden costs.
For example: Being a member of a Networking group may cost £500 / year. But it also might cost 5 hours of your time every week, and travel cost, and coffee or lunch costs etc. Suddenly that £500 a year is more like £5000.
When you add all these costs up, the money you had set aside for video seems to have disappeared! In reality of course, it means your total Marketing Spend is higher for your business.
Here’s another rule-of-thumb (with the caveat that no two thumbs are alike…)
For example:
What?? Horrendous! We couldn't possibly spend that... Well in that case, the money spent on web presence is being wasted. You're on the motorway doing 70mph in 2nd gear. Reduce it to the point where the spend demands are more balanced.
Larger companies spend tens, if not hundreds of thousands each year on their web presence, and need to match it with appropriate budgets for video in a number of different forms (ads, promos, explainers, sales videos etc.)
Smaller and micro SMEs, sole traders or 3-person companies may well find that their costs for web presence and video are somewhere between £1000 and £4000.
I repeat - this is a guideline, a rule of thumb. The marvellous thing about generalisations is, they're generally wrong. You particular business may well need to allocate significantly higher or lower budget than this guideline.
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