It’s year-end, and you know what that means: budget season. It also means that your marketing efforts and expenditures may be under the microscope. As firms grapple with how much to spend in this critical area — and what to spend it on – one of the most common questions we hear is, “What percentage of net service revenue should we spend on marketing and business development?”
While there are benchmarks, the real answer is, “It depends.” And, in fact, there are other important questions that I encourage you to answer first. In this issue of The Friedman File, we’re diving deeper into marketing and BD expenses and how you can create a budget that’s aligned to your business goals and better designed for success.
The role of benchmarks
On average, it’s fair to say that AEC industry firms spend 5-6% of net service revenue on marketing/BD, including labor. On average, there’s one marketing/BD professional for every 35 staff members.
The key word here is “average”. These numbers include small firms and large firms, mediocre firms and stellar firms, fast-growth firms and those who are happy to stay small. Many surveys have a relatively small sample size, so it can sometimes be hard to apply the data to your specific situation.
“Surveys offer a watered-down average,” says Brad Thurman, PE, FSMPS, President of SMPS Foundation and Principal at 150-person Wallace Engineering Structural Consultants, Inc. (Tulsa, OK). “They are good for a backcheck. If you are spending 2% and you know that the industry average is 7%, for example, then you need to think about what you’re doing.”
Many firm leaders have a gut feeling about whether their spending is on target for their goals, and having a benchmark can confirm that thinking. In our experience, fast growing firms spend more (as much as 8-10%), but the bigger question is, “What are they spending money on, and why?”. This isn’t a question to answer by comparison, but by taking a closer look inward.
Here are 4 questions to ask when planning for your annual marketing and business development expenses.
1. What do you need your marketing/BD to accomplish?
One recent survey by Zweig Group showed that more than a quarter of firms don’t have a formal marketing plan and less than half have a formal marketing budget. Without a plan and/or a budget, it’s unlikely that you’ll be maximizing your marketing dollars. To create an effective plan, you need to understand the following:
- What do you want to accomplish this year as a firm? What are your targets?
- What will you need to do to get there? How can marketing and BD efforts support that?
- What will those efforts cost?
- Are there other projects that need to be rolled in, such as an overdue brand or web site refresh, additional events, a new hire or new initiative?
- What will that cost?
Once you have a clear picture of projected expenses, you can truth-test that number, says Thurman. Is it too much or too little to meet your objectives? Will you spend more than usual this year, or less? Should you add to that budget, or subtract?
If your key objective is to ramp up your visibility with a new social media and web presence, that’s a different budget than if your goal is to put more people on the road to meet regularly with clients and prospects.
2. What are your true labor costs and needs?
Charging labor to marketing is a real challenge for many firms. Some break this out into separate categories, while others lump labor into the larger marketing spend. The right way depends on the size and structure of your firm and the details of your business plan.
There can be a tendency, however, to charge marketing when you don’t have billable work, or to use it as a catch-all. That’s why it’s hard to draw valuable conclusions from other people’s numbers, and sometimes, even from your own.
While many firms wonder how many marketing/BD staff they should have, here’s what to ask to answer that question for yourself:
- What is your business plan?
- What do you need your marketing/BD staff to accomplish?
- Is the firm a seller-doer organization with a heavy BD effort?
- What are you realistically able to do in-house and what will you outsource?
- How closely are you tracking time spent on marketing (by marketing staff, principals and all involved in marketing/BD tasks)?
You may need to introduce new systems and procedures to better track and report on specific activities such as conferences and networking events, as well as time spent on proposals, market positioning efforts and other tasks. The more granular you can get, the more informed your decisions will be.
3. What is the ROI of that spend?
More budget doesn’t necessarily mean more results. You may spend 10% of net service revenue on advertising or highly paid business development professionals and not see the results you seek. The key to success is focusing on high ROI activities that are aligned with your firm’s business goals and client sector focus – and tracking your results.
That means leaning in to tried and true strategies that you can leverage over time, such as consistent relationship building and market positioning activities (e.g., giving talks and getting published in client-centric forums) that communicate subject-matter expertise. These activities enable you to reach a broad spectrum of influencers and decision-makers, shorten the relationship building process between your firm and potential clients, and offer high-value repackaging opportunities, too.
Many firms struggle with implementing marketing technologies such as client relationship management and sales systems, but these tools (when selected and used appropriately) can help you better track your efforts and gain the data you need to further refine your processes.
And don’t forget the clients you have! Cultivating repeat clients is a critical part of marketing and BD. Training your people on how to ask the right questions, better understand their clients and build authentic relationships is often a solid investment with high return.
4. Where can you make data-driven decisions (and where not)?
You will rarely have all the information you want to make a decision, a challenge for AEC professionals who are trained to problem solve with as much data as possible. In many markets, to benefit from first-to-market advantage, you may have to move forward and course correct as you go.
That said, you do need to have some data and not all AEC firms are great at tracking what they could know. What should you be tracking? While every firm has different needs, there are a few important metrics to keep in mind:
- Projected revenue and sales versus actual
- Profit by client sector and discipline
- Backlog of projects
- Weighted dollar value of outstanding proposals
- Sole source work versus competitive, and new versus repeat clients
- Percentage of shortlists and win rates by client sector
- Type/success of outreach to top targets
- Market positioning metrics, such as press coverage/placements, talks submitted and awarded, number of attendees at webinars or events, mailing list growth
- Web and social media analytics, such as click throughs, engagement and KPIs that are tied specifically to your strategy and goals
What are your biggest challenges with budgeting for your marketing and BD efforts? Share them with me at firstname.lastname@example.org or (508) 276-1101.