How do you budget for marketing? 

There are five basic methods you could use to budget for next year’s marketing support programs.  In our experience, most agents use the “whatever the traffic will bear” approach.  Not the best idea if your major goal is to grow your agency. We recommend a better way.

Five budgeting methods 

1. Same budget as last year, with inflation adjustment 

2. Percentage of last year’s sales income 

3. Percentage of next year’s projected sales income 

4. Whatever the traffic will bear 

5. Task Method  

Task method is results-oriented 

We urge you to try (5). The Task Method begins with the identification of the marketing communications objectives that support your sales plan. 

Once the objectives are clearly identified, you determine what specific communications tasks you must implement in order to achieve them. 

Then you cost out each individual task.  The total becomes your preliminary budget.  This budget must pass pragmatic cost/value tests.  If the preliminary budget fails your tests, you need to rethink your tactics. 

When you need to reduce the preliminary budget, first reduce the scope of your communications (the size of the target audience, for example), NOT the frequency of your messages or the quality of your ads, direct mailers or sales literature. 

ROI is the bottom line 

The Task Method is a return-on-investment (ROI) approach.  It supports specific,measurable objectives and strategies to produce business income results. 

There’s a hooker here. You need to know your numbers. 

The Sales Funnel 

If you send out 100 direct mailers to homeowners, how many direct responses will you get? How many more responses will you get through a second or third mailing to same 100?  If you do an automated telephone follow-up, how many responses will you get?

Let’s say your overall response rate is 10%.  How many of the ten responders will you close?  What is the average premium income for each new piece of business; the average commission income. 

Let’s say you get 10 responses, you close 5 sales at an average HO premium of $600, and average commission of 18%.  Your bottom line: $108 of new income times 5 customers…$540.00 per 100 prospects targeted for your direct mail program.   

Measure this funnel result against the cost of your mail program.  Is the ROI satisfactory?   

Note: Many agents that we consult with are satisfied with a modest ROI or a breakeven result in year one. They know their max return comes from renewals, and a healthy Lifetime Value of Customers (LVC).  

Most used budget method? 

Take a guess.  You’re right: # 4 Whatever the traffic will bear! 

There is a good reason for this. It is a common sense test that you must give to the Task Method or any other budgeting method you decide to use. 

 But do not start with this method. And, again, if you must cut back your marketing budget, cut back your ambition not the effectiveness and quality of your marketing effort.