Setting a Competitive Marketing Budget: Part 2
In our last issue of Pivot, we explored marketing budgets across four broad professional services segments, based on the results of our 2008 survey of 100 CEOs. This month, we take a closer look at those companies in our sample that grew at a rate of 20% or more (we call these high growth firms). What we found really surprised us.
On average, high growth firms in the Washington, DC region grew at a blazing 56.7% in 2007 (compared to 7.1% for non-high growth firms). To sustain their growth, they increased staff by almost a third.
For the majority of firms, our data showed a close relationship between marketing budgets and performance — the more money firms invested in marketing, the more they grew. But something interesting happens in the high growth segment. Instead of spending more on marketing, they actually spent less than average.
What accounts for this apparent anomaly? We did a little digging and uncovered some fundamental differences in the marketing priorities of high growth firms versus their slower growing peers.
Characteristics of High Growth Firms
In general, high growth firms position themselves differently. They focus on producing outcomes, not just delivering expertise. From the buyer's perspective, technical expertise (unless highly specialized) is viewed as a commodity — any number of firms can provide the services they need. Buyers, however, want confidence that their business problem will be solved, that the firm they hire will be flexible and accommodating, and that in the end their buying decision will make them look good — to their board of directors, investors, and their clients.
High growth firms pay less attention to external forces such as the economy and competitors, devoting their energy instead to marketing, building their reputation, and managing growth. These firms keep marketing expenses down, in part, by targeting the audiences that are the best match for their positioning. When a firm specializes, it's far easier to close business because there is a correlation between the offer and the prospect's need.
In addition, high growth firms focus much more on getting new nonreferral business than non-high growth firms. They don't wait for new business to come to them. They understand that they have to continually seek out new clients. Ironically, high growth firms end up getting more referral business.
High Growth Marketing Priorities
So where do high growth firms spend their marketing dollars? They put most of their attention into three key areas: building awareness, lead generation, and their website. They are much more likely to use outside marketing expertise.
These firms build awareness through ongoing public relations efforts and, to a lesser extent, advertising. To generate a portfolio of leads, high growth firms employ a variety of traditional marketing techniques, including direct mail, cold calls, trade shows and newsletters (either distributed electronically or mailed). And high growth firms recognize that their website is their single most valuable marketing tool. They fill their website with great content, update it regularly, and invest in periodic site upgrades.
Conclusion
As you begin thinking about next year's marketing budget, take a look at how successful firms are using their money. Based on our research findings, a boost in your marketing expenditures could have a significant, measurable effect on your revenues. But if you want to become a growth leader in your industry, consider refocusing your message and process to reflect what your clients really want. You'll still need to focus on marketing, but every dollar spent will take you further, faster.
To learn more about strategies of high-growth firms, download Hinge's 2008 competitive strategy study, Defying Gravity. It's free, and no registration is required.