This week, with the help of some of our profession’s leading lights, we want to explore marketing budgets.

Every business will debate this question and agree a marketing budget that’s right for them. However, the amount allocated must ultimately represent an investment, returning many times your initial outlay. If it isn’t, something is wrong; you will see it as a cost, not an investment, and soon get frustrated.

Return on marketing budgets shouldn’t be measured solely in initial fees either. The long-term value of a client will far outweigh the fee you charge for a financial plan or its implementation.

That said, your marketing budgets will of course have an initial hit on cashflow. Exactly how much you allocate is the tricky question we want to tackle today.

Adviser thoughts

We posed the following question on Twitter: Assuming a steady growth of new client enquiries is required, what percentage of your turnover should be allocated to marketing?

These were the results for the four answer options we gave:

• 0% spend: 17%
• Around 5%: 36%
• Around 10%: 31%
• Over 10%: 16%

The poll received nearly 100 votes and while the answer options might not have catered for everyone, two things struck me.

Firstly, around one in five advisers believe they can recruit clients without the need to spend any money. Presumably they will use a referral and recommendation strategy. However, I have to question whether it is realistic to spend nothing, especially as almost all firms have a website. The people who voted 0% may also take on the marketing role themselves. However, the time they spend on, for example writing blogs, would otherwise be billable to clients and therefore should be charged back to the business as a cost. In other words, it isn’t free time.

Secondly, the clear majority of advisers (83%) are prepared to allocate around 5% or more to their marketing. This shows an acknowledgement that marketing is essential to building a business.

A wider online search reveals a consensus that spending 5% – 10% of turnover is necessary to maintain and then grow current turnover levels. These pieces are often written by marketing agencies, experts and ‘gurus’ who could be accused of having a vested interest.

The CMO Survey (of 2,628 marketers in US, for profit companies) shows that firms expect to allocate 6.9% of their revenue to marketing in the 12 months to August 2017. That’s down from 2016 but broadly consistent with a band of 6% – 11% of turnover.

To our experts

The CMO Survey is extremely interesting. However, it’s based on businesses in the US. We wanted to look closer to home, so posed the original question to a series of experts here in the UK.

Brett Davidson, Founder, FP Advance

“Marketing commitment is clearly subject to your stage of development as a business and your need for new on-target clients.

However, the fastest growing businesses I know have been prepared to commit significant investment to this area from early in their development; often around 3% of annual turnover.

When you’re small that’s peanuts and it might be necessary to make a commitment of say £20,000 – £25,000 when you are ready to be professionally branded and positioned by an expert. That can happen as early as £200,000 of annual turnover.

Sure, you can do the individual pieces for a lot less if you have expertise in the various marketing and design disciplines, but who’s got the time? Professional marketing support will pay for itself over and over.

I’m not talking getting a new website here. I mean total marketing support that makes you look as good as you truly are and that gets your message out consistently, forever, in a range of ways that are perfect for you and your business.

 

Serena Humphrey, Managing Director, F Word Training

“This is an interesting question and the easy answer is: “It depends”

It depends on your business and where you get your clients from.

I’ve been working with businesses from every sector over the last 17 years, and the average I would advise is between 10% and 15% of your turnover.

And it’s essential to see your marketing spend not as an cost to be cut and managed like an overhead, but an investment. When you manage your marketing as investment, you’re looking to get a very specific return on that investment.

So the question isn’t so much what should you spend, because you could spend 20% of income and not get any return.

You need to ask what return are you getting on your marketing spend. Because if you’re getting a great return you’ll probably want to do more of what’s working.

The most sensible question to ask actually is: “What do I need my marketing to achieve for me?” I’ll give you a clue here; it’s not fluffy measures such as hits, likes or followers. It’s about how your marketing brings you consistent leads that give you the turnover you want.”

 

Martin Bamford, Chartered Financial Planner & Managing Director, Informed Choice

“A lot depends on how you define marketing and the monetary value you place on time. In terms of cold, hard cash spent on marketing, it’s always between 5% and 10% of turnover. Our marketing will see us acquire 62 new clients this year, in addition to protecting and growing our recurring revenue, which accounts for about two-thirds of our overall revenue target.

We spend quite a lot on sponsorship activities throughout the course of the year; for 2018 we are due to sponsor nine major local events. For each sponsorship we get the most bang for our buck by getting involved in organisation too and being present for the event itself. As a business we spend very little on print or online advertising. We do however devote a lot of our time to content and online marketing, with is a force multiplier for a small business like ours and always a good return on time spent.”

Chris Budd, Author of the Financial Wellbeing book, founder Ovation Finance

“For a financial adviser, there is nothing more annoying than a new client that you know you can help, but they decide to save the fees and do it themselves.

So why do advisers so often think they can do their marketing themselves?!

Those clients who think they can do it themselves will often create an investment portfolio with no clear objectives, then not look at it again. The same goes for doing your own marketing. A good adviser will set up the plan, then help to deliver the specifics, keep an eye on returns, and make changes based on results.

Marketing is something to invest in. I’m not keen to put a figure on it – at Ovation we spend a lot of time on marketing, especially through the Financial Wellbeing Podcast. But I’d suggest a minimum requirement should be at least 5% of turnover plus external help.”

 

Jason Butler, Financial well-being expert and ex-CEO and founder of Bloomsbury Wealth

“Financial advice and planning businesses that wish to survive and thrive need to invest sufficiently in marketing and communications. The target audience isn’t just new clients, important as they are, but includes existing clients, to ensure high retention and advocacy (propensity to make referrals).

Marketing and communications means everything from the design of client facing collateral (reports, valuations, education material), digital platforms (website, social media and data portal), brand identity and the client experience (meetings, events and contact with staff).

This activity needs to be part of the firm’s strategic business plan and the practical actions reflected in a rolling 12-month action plan or roadmap, with proper provision made in the firm’s budget. Most business planning books I’ve read suggest that ambitious businesses need to be spending at least 5% but ideally 10% of their revenue on marketing and communications activity.

Whatever the size of business it’s essential that they work with outside experts that have the right skills and experience to help deliver the right outcomes at the right price. What is clear to me is that the days of piecemeal, ad hoc or amateur marketing activity is well and truly over for the advice firms of the future.”

 

Laura Janes, Founder, Uniquity to the blog and the newsletter

“When it comes to setting marketing budgets, there isn’t really a ‘one size fits all’ answer. It truly depends on a number of factors such as – the size of the business, the strength of the brand, the ideal customer type, the context of the market and of course the growth rate required. However, as a ballpark figure I tend to say that businesses looking to grow by more than 10% need to be investing at least 5-10% of turnover – especially if initial investment is required in the brand and online presence. To get to a more accurate budgeting figure with our clients, we often build a simple statistical model based on their previous performance, the data we hold on various media types and our knowledge of the market.”

To conclude

It’s clear that the vast majority believe allocating marketing budgets is essential if your business is to stand still, let alone grow. The exact amount clearly depends on your business objectives.

Two further fundamental principles emerge:

1. Undertaking marketing activities yourself. For example, building websites, writing blogs, sending newsletters isn’t “free”; it’s time you could otherwise be using to create turnover in to your business from client work
2. Monitoring the return (or otherwise!) on your investment is vital. Otherwise, how will you know what’s working, and what isn’t?