From the desk of Patrick Ward...
At this time of year, most companies are formulating their plans for the year to come. Setting your marketing budget and allocating a portion of that budget for public relations should be part of this process. Since we have been examining how to measure your investment in public relations in our last few posts, we felt a discussion about budgets is perfectly timed.
While budgeting for marketing initiatives is crucial, for some reason we often find clients and prospects have trouble revealing their budget, when asked. Maybe the truth is that many companies do not know where to begin.
Here are some basic budgeting parameters that may help.
Established companies often determine marketing budgets as a portion of overall revenue and then allocate a portion of that to PR. Experienced marketing executives know how to do that, and if you have strong sense of both what you want from your program and how you want to measure it, then that should be pretty straightforward. A rule of thumb we have used and have found effective is that marketing budgets should be about five percent of revenue. The PR budget often is between 10-20 percent of that figure. Of course, there are a lot of variances in that number: markets, geography, channels, even the size of your direct sales force dictates the size of your marketing budget.
For emerging companies and start-ups, especially those without sustained revenue or distinct marketing efforts, that recipe doesn't really work. For these kinds of companies, it's harder to find a formula because everything in the business is sort of unpredictable -- and then you have to consider the weighting of PR. In other words, many companies rely more heavily on PR because it is a cost-effective means of telling a story. Newly formed companies should probably expect to pay between
$5000-$7000/month and then expect that to increase by 15-20 percent every other year or so, if the company is growing nicely. That should include most PR tasks, even though you probably won't do every one of them in every month. You should also expect the volume and sophistication to increase with the budget -- probably an obvious point. While this may be a very broad stroke that garners a suspicious look from marketing execs or CEOs who think $15,000 is a lot to pay a PR firm, remember, there are no shortcuts to effective PR, and the budget should reflect that.
Retainer versus Hourly Rates
The other issue prospective clients bring up is retainer versus hourly rates. We always look at retainers as a sort of hedging system. A retainer motivates agencies to get the work done as efficiently as possible and makes the client want to load up as much work for that retainer as possible. The hourly model makes clients nervous since there is a ticking clock on every project.
We find the best budgeting method is to determine the necessary projects and then fix budgets to those projects. We also find it works best then to add up those project budgets and divide them into monthly installments for the length of the engagement. That way, the agency can manage cash flow, and the client has a very clear idea of what everything costs and can rest assured the work will be accomplished within the limits of the budget.
Like most things in the client/agency relationship, budgets need to be a transparent process. If you are engaging with an agency, then you should have a clear idea of your budget and you should tell your agency what it is. That is the only way to right-size the effort. And if the budgets aren't set, then you should probably get them set before you engage with an agency. It will make your efforts more productive, and the more transparent you can be, the more you will build a partnership that will have greater long-term benefit.