Point/Counterpoint: Who should set the marketing budget – the client or the agency?

Nader Ashway marketingthingy blog post image - who sets the marketing budget

Okay, so I’m borrowing from Saturday Night Live’s classic sub-skit featuring Jane Curtin and Dan Aykroyd.  But it’s the only way I think we can easily platform this complex topic for debate.  For you legal eagles out there, copyrights appear at the end of this post.

Who should set the marketing budget – the agency or the marketer?  This seems to be the question that plagues marketing relationships – especially between small and midsize marketers and smaller agencies.  On the broader scale, it’s pretty easy…larger marketers (and/or public companies) tend to stipulate their budgets way out front, and use previous years’ spend as a barometer, which can be tracked on resources like Adviews, a subscription-based tool from Nielsen. Generally, most of that spend is earmarked for media anyway.

But with smaller/midsize companies and smaller/midsize agencies, it seems that the budget dance is a tricky little two-step, and no one seems to know who should lead.  Let’s explore both scenarios and see which one makes the most sense for you.  Your opinions are invited!

Jane:  The agency should set the budget.
Buying marketing services is similar to buying any other services from any other vendor.  That being the case, you want to get the most bang for the buck.  So you invite a couple of agencies in, set up the goals for the upcoming year (or the project or initiative) and ask them to come back with a proposal that sets out a budget, a timeline, and what they expect they’ll achieve.

The agencies come back with proposals about what they think the marketer should be doing (building a microsite, running an outdoor campaign, running a sweepstakes, maybe,) and what they want to charge you for that. So the benefit is that you – the marketer –  do get to see a variety of thoughtful approaches to your marketing, as each agency will make different types of suggestions and usually prepare very fancy presentation materials!

As far as costs, an agency will typically include management fees, creative fees and expenses for out-of-pocket costs, like media, some third party add-ons, printing, postage, web development, etc.

This is the best way to do it.  I’m not telling what the agency to spend – they can tell me what they want, and I’ll choose from there. Agencies know what things cost, they know what they need to make to be profitable, and they know what I want.  Why should I tell them I have $100,000 to spend this quarter if they can deliver it at $75,000?  I have to be responsible with my budget.

Dan:  The marketer should set the budget.
Jane, you ignorant slut.  Everyone knows that if you ask an agency to set the budget, they’ll come back with a number you can’t afford, that includes every possible marketing incarnation from social to mobile to telepathic or whatever.

Or worse, they’ll suggest an over-inflated, over-reaching grandiose plan that includes tons of media that they can commission at double digits, and tons of dopey ideas like flash mobs and street teams and who knows what else.  [Not that these are bad ideas, but when there are no boundaries, some agencies like to frolic in the fields on your dime.]

If marketers want to get an equal assessment of how an agency can perform, the best way to do that is to quantify specific parameters:

using X dollars, and in Y time frame, what do you suggest to help us meet objective Z? 

Using this simple formula, or expanding it to a more detailed RFP, you will get presentations from agencies that are focused, that demonstrate their core capabilities and that usually have an ROI component attached.  But without stipulating dollars, you’ll never quite be comparing the presentations on an equal footing.

Marketers, YOU know what your goals are.
Not the agency.
You know what your operational expenses are to sell a product or service.
Not the agency.
You know what your board of directors or shareholders want to accomplish.
Not the agency.
You know what you have to spend to get there.
So why ask the agency to tell you?

So.  What do YOU think?  Should the agency tell you what to spend, or should you ask an agency what they’ll do with your budget? 

“Point/Counterpoint” is intellectual property:  a sub-skit of “Weekend Update.” “Weekend Update” is part of a comedy program called “Saturday Night Live,” created by Lorne Michaels; originally written by Chevy Chase and Herb Sargent. © 1975 Broadway Video/SNL Studios.

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9 thoughts on “Point/Counterpoint: Who should set the marketing budget – the client or the agency?

  1. David Adelman August 2, 2011 / 4:14 pm

    Great post, Nader. Both are viable opinions. I would suggest that the quants (I count myself among them) should set the budget, not the agency. Quants deal in business metrics first whereas most agencies think in executions and rationalize expenses based on communications needs. Give me two days and a lot of numbers and I’ll tell you what the budget should be using predictive modeling and forecasting.

    • Nader Ashway August 2, 2011 / 6:29 pm

      Thanks, David. When most people think of “agency,” they don’t think of your type among them, so it’s refreshing to hear a viable third option. When you say you need two days and a lot of numbers, what kind of variables are you analyzing? It would be great for readers to get a sense of the kinds of parameters you use to make those determinations.

      Thanks,
      n

      • David Adelman August 2, 2011 / 6:56 pm

        We look at historical marketing efforts and overall results to find statistical correlations. These help us develop sales impact factors, enabling us to forecast future results using a number of “what-if” scenarios. It’s really very simple.

  2. thecoachlee August 2, 2011 / 7:14 pm

    Great perspective, but neither should set the budget. The budget should be set by the executive time based upon the desired results as outlined within the strategic plan. This creates a baseline for return on investment and marketing should deliver a return on investment that can be quantified contrary to some marketers who resist that qualification.

    Leanne Hoagland-Smith
    Author of Be the Red Jacket

    • Nader Ashway August 2, 2011 / 7:31 pm

      Interesting perspective, Leanne. But in the world of small to midsize businesses and agencies, there often isn’t a strategic plan that outlines a vision and ROI for each SBU. When there’s no roadmap, it’s hard to know where you’re going, and I think that’s why this debate carries on.
      n

  3. David Adelman August 2, 2011 / 7:44 pm

    Leanne, there is a lot of what we call “circular causality” going on at companies who prefer to set predictable goals that lead to predictably mediocre results. ROI is the wrong measure to use when it comes to setting an advertising budget because advertising drives new customers (trust me, we’ve done the work) whereas ROI looks at total short term sales, diluting the specific impact of advertising.

  4. Keith Flanagan August 10, 2011 / 4:28 pm

    Lots to think about! Marketing not being my strongpoint but it should be!

    Many thanks for giving me some good food for thought.

    Best wishes,

    Keith

    • Nader Ashway August 10, 2011 / 5:22 pm

      Keith-
      I know you write about leadership and management, and marketing is often mismanaged because no one wants to lead it! (Ironic, eh?) I look forward to more of your insights.
      Cheers,
      n

  5. Sandra McLeod Humphrey August 10, 2011 / 6:47 pm

    WOW–I enjoyed listening to the professionals on this issue! As a total novice when it comes to marketing, I would have thought the consumer would set the ballpark figures and the agency, in turn, would work within those parameters.

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