We in advertising agencies commonly refer to any investment in advertising projects as an opportunity to deliver value and a tangible result that will bring economic benefits and improve the brand identity of our clients.
Although uncomfortable questions always arise: In which area do we give more focus to our investment? Which investment generates the highest return? Which campaign generates more information for decision-making? In which segment do I get the best results? Finally, how much to invest?
The question of how much to invest? It is more complex than it seems, especially if we take into account that culturally we invest well below the average of what is customary. According to the prestigious organization The CMO Survey (Chief Marketing Officer), which endorses and collects information from more than 600 organizations and companies related to Marketing, in 2019 B2B (business-to-business) companies invested 8% of their annual revenue in advertising and marketing. and B2C companies (business to end customer) invested 9.2%. In Mexico, according to AMAPRO (Mexican Association of Promotion Agencies) we invest 5.1% and in SMEs we do not even reach 3.0%.
Before determining the percentage to invest, we must clarify that this investment goes much further than the payment of agency fees, an advertising campaign covers a wide spectrum that goes from actions to increase sales and commercial presence, loyalty promotion and trust in customers, differentiation, positioning, penetration, branding, market research for new product/service lines, institutional image, acquisition of information for market knowledge and decision-making, promotional items, among many others.
With this clear, my suggestion is focused on following the following three axes to determine an adequate estimate of advertising investment:
The objective, strategy, size and life cycle of our company will determine the appropriate budget that we must invest in advertising. Being a new company with innovative products, it should require much more investment than a mature company with commodity (generic) products.
The ideal is to assign an annual budget to advertising. In this way it will be easier for us to prioritize the actions that will bring us greater profitability. Plan ahead based on your campaign objective and determine an annualized budget, this gives you much more freedom to consider seasonality to achieve better overall results throughout the year and not one-off results in a short period of time.
The amount to invest will be determined by many conditions, there is no “standard”, because as we mentioned, each business determines its amount according to what is mentioned in axis 1. Considering that the life of Mexican companies is very short and that normally the budgets are tighter, a good indicator might be to invest 4% to 9% of your sales.
We must take into account that like any effort, any advertising investment requires time so that the results obtained can be successfully determined, we must think a little more in the medium and long term, analyze the information in real time to make better decisions over the long term. of the duration of the campaign, measure its profitability (ROI) to determine the economic benefits on the investment and be open to changing focus at any time that the situation is not as expected. The market and the competition are constantly changing, we must be ready to professionally face the noble task that our client entrusted to us, regardless of the investment that has been assigned to us.
Ing. Héctor Sotomayor, MA, Tec de Monterrey professor of the Department of Engineering and Sciences, Managing Partner of the agency digitocreativo PUBLICIDAD, S.C.® and member of ASPAC. Email: email@example.com