How To Spend Your Marketing Budget For Maximum Profitability

Let’s not kid ourselves, marketers are in the money business. The entire function exists to drive a greater profit for the organization. So, with a plethora of options out there, how do you achieve that goal?

The different types of marketing

Marketing (as a whole) may be split into two areas:

1. Sales activation

Focused on in-market customers, those ready to buy right now. Here we’re talking tactics like paid search, email or affiliate marketing, pretty much everything that falls under the “performance marketing” umbrella. 

1. Brand building

Focused on out-of-market customers, not ready to buy today, but will be ready in the future. Tactics include PR, TV advertisements, sponsorships and so on.

 

How are they measured?

When it comes to measuring these activities, sales activation is a lot easier. It’s a real “dollars in, dollars out” ROI calculation, happening in real-time. How much have you spent on performance marketing and how many sales has that delivered? It’s an easy question to answer, with the right tools.

Brand building, on the other hand, is much more complex. Your ultimate goal here is to achieve “mental availability” (making sure your audience thinks of you first at the time of purchase) and reduce your price sensitivity (in other words, increasing the amount that your audience is willing to pay for your product or service), both of which take time. Measuring these metrics is done over periods of months and years, and generally requires third-party research. 

So it’s understandable that many organizations prioritize the sales activation side of marketing. It seems to make more business sense. But just because something’s easy to measure, doesn’t mean it's the right call.

 

Which is best?

One of the most rigorous studies of marketing effectiveness, The Long and the Short of It, put this to the test. The authors, Binet and Field, analysed close to 1,000 marketing case studies in great detail to understand what really drives impact. 

They found that the most effective marketing spend is split 60% for brand building and 40% for sales activation. Here’s their model showing why:

 

 

Essentially, it’s a lesson in trust and patience. Whilst both types of marketing are important (one does not work without the other) sales activation only helps a brand capture the demand that already exists and exploits existing mental availability, hence why the spikes never get bigger. On the other hand, brand-building generates the demand itself and primes mental ability beforehand (and, don’t forget, also enables you to charge more for your product or service). Which is why the brand building performance grows and grows, surpassing sales activation after six months.

And it’s not just sales uplifts either, the same rules apply for profit growth. In a different paper by Binet and Field (Media in Focus) we see how a campaign’s ROMI (“return on marketing investment”) does not correlate with profit growth:

 

 

Hence the marketing budget balance tipping in the favour of brand (60%) over sales activation (40%). 

And to reiterate: this isn’t just theory, this is the analysis of close to 1,000 marketing case studies. It’s also well recognised by the smartest in the business too; like Brian Cheskey, Airbnb’s CEO, who said in February this year: 

 

“Our marketing plan, therefore, our strategy is the following: a full-funnel marketing approach. 

The top of the funnel is actually PR. We got more than 0.5 million articles in the last year, in 2020, and we had as much share of voice as most of the other major travel companies combined. 

And that's how we really built the brand of Airbnb – more than anything, probably, is PR. Second is brand marketing. We think of brand marketing as education and an investment.”

 

But what about your sector? Your market position?

However, that split is not rigid; further studies by the Institute of Practitioners in Advertising (IPA) have proven the most effective mix for a brand in its first year - for example - is 35% brand activation and 65% sales activation:

 

 

And different sectors require their own mix; though, notably, brand building consistently remains the majority of spend across almost all markets:

 

 

Either way, the 60/40 split, in favor of brand building, is the simplest, safest bet to start with. 

 

Go forth and prosper

I encourage you to use this evidence, educate your internal stakeholders and show them how the 60/40 split is the surest path to increasing your organisation’s profitability.

And if you’d like to take this discussion further, drop us a line here at Clarity. 

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