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Marketing Performance by Dennis Spillecke, Jesko Perrey, Jonathan Gordon, Tjark Freundt, Thomas Bauer

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1 — Budget sizing: Combine multiple lenses to right-size your marketing budget

Why does budget sizing matter?

How much should you spend on marketing? It's the biggest question of all, and yet many companies settle on an easy answer. Most years, they spend whatever they spent the previous year. If they make adjustments at all, these are often a function of overall company performance: if the company is prospering, the budget goes up – sometimes beyond what is necessary or effective. And in times of stagnation or decline, marketing budget cuts are as certain as death and taxes, even if reduced marketing support is the last thing a troubled company needs. This is because a lot of companies still define their marketing budget as a percentage of past sales. In effect, budget sizing is decoupled from business requirements. Budgeting inertia is further aggravated by the fact that many companies buy media many months – if not years – in advance.1 If you are serious about turning the marketing function into a profit centre that contributes to the company's bottom line, put an end to these wasteful practices and introduce zero-based budgeting. First conceived in 1970 by Peter Pyhrr2 – a controller at Texas Instruments at the time – zero-based budgeting is about “reviewing every dollar in the annual budget”, 3 taking nothing for granted, and only signing off on budget positions that promise sufficient returns. Applied to marketing, this is nothing short of a paradigm shift – from a cost ...

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