Marketers should set production budgets or pay the consequences

Apple 1984 television commercial

So you are filling out your comms campaign brief to the agency (and TV is your medium of choice). So when you get to the bit in the brief that says how much your production budget is, what do you put in the blank field? This is a point of contention for many marketers, with some feeling it is better to provide the budget and others not.

Why set an advertising budget?

When you think of professional services, and especially commercial creative services, negotiating or agreeing the budget upfront is important. After all, there is no point briefing an architect to design a building without indicating the budget for the construction.

Likewise in advertising, it is very important to set a budget as it will indicate to the agency your financial expectations and the agency can apply their creative talents within these parameters. This is a good thing, clever creative is just that, clever, it does not have to be expensive.

Setting a budget will ensure is that you will be more likely to end up with a great piece of creative work and enough media budget to make sure enough people will see it to hopefully ensure it delivers its full efficacy.

What happens if you do not set a production budget?

Some marketers are worried that providing the budget will simply have the agency spend it. The fact is that without the budget they will most likely end up spending more money than they need. That is why in setting the budget it should be based on what the production is worth to the organisation based on the task at hand.

If you do not set a budget you are wasting everyone’s time as they are working without understanding the framework they are working within and this will lead to having to be reigned in (creatively or financially or both) somewhere along the line. A big production idea without a big budget is an embarrassment to all. Where a big creative idea is delivered bang on the money, it is a winner for all.

How to set an advertising budget

The easiest thing is to  just add a few percentage points to last year’s budget, so your spend is based upon historical trends. The problem with this is you could be simply compounding past inefficiencies and inequities.

So how do you draw a line in the sand? How do you set production budgets?

It’s easy (and the concept has been around for years)! All you do is set a percentage of your media spend as a production budget. The media spend is usually the biggest single expenditure in the advertising budget. The media budget is based upon the task, the strategic  importance of the project, the demographic targeted, the reach and frequency required and the value to the organisation and the marketing strategy.

To calculate your production spend the next bit is simple, you decide what category your campaign fits into and apply the appropriate percentage to the initial media budget and this becomes your production budget. e.g. A retail TVC (this is a TVC with a price point included no matter what the product) should have a production spend of 10%, so if you are spending $2 million on media you should be spending $200,000 on production.

Over the past 13 years we have been tracking media to production ratios and can provide these guidelines by advertiser category:

  • Service industries (Financial and Telco) – the percentage is between 10% and 15%
  • FMCG or Consumer Goods brands – the percentage is between 15% and 20%
  • Luxury goods (big ticket items or services) – the percentage can be up to 30%

But these are simply the starting point. The secret is to set the budget also taking into consideration criteria like:

  1. the total media investment (in the first year)
  2. the strategic importance of the campaign
  3. the potential for on-going use

For a reality check it is always wise to consult a senior member of your marketing team or an independent specialist.

The production budget is a guideline

From these benchmarks you could say that any percentage over 35% means you are potentially in the “I am seriously wasting money” zone. But here is the thing, these percentages are guidelines. They are the starting point against which the production cost is referenced. The agency should deliver concepts to this budget to answer the brief, but it should not prohibit the agency from presenting more expensive concepts as well.

If Steve Jobs had religiously followed these guidelines, then the 1984 commercial above to launch the MacIntosh would never have been made. Legend has it that the cost of production was so high that there was only enough media money for the spot to run once during the Super Bowl. Now that takes a fairly courageous marketer to follow this strategy (luckily he was the CEO).

The point is that these would be developed at the agency’s expense and presented with a clear indication of the cost to deliver at the time of presentation. This gives the brand team the opportunity to assess the value of the additional cost above and beyond the budget.

How to keep the agency within budget

If you can’t afford the media spend to reach your target demographic with significant frequency then a big production spend is not always the answer.

Your agency may say there is a strong possibility that the TVC will go viral on the internet / YouTube because it is such a brilliant piece of creative and worth the investment, ask them to guarantee it and watch their faces.

First of all, never let yourself be up-sold (you know the scenario). The agency pushes a few ideas across the table, they go through the motions of trying to sell them to you. And when that’s over they all smile broadly and say,

“But we also have this idea. It’s a beauty, unfortunately it’s a little over your budget”.

This is the line in the sand that you cross at your own risk.

  • You can either just put up your hand and say “Well we don’t want to see it, go back to the drawing board and come up with a ‘beauty’ that is within our budget”. Do this twice and the agency will get the idea that you are serious, and (if they are up to it) start producing clever work that is within your budget.
  • Or you can review the ‘beauty’ and if you believe it has merit, ask the agency to prepare a ballpark quote that they can guarantee accurate within 10%. (Any agency producer worth their salt can do this) and then review if you can afford this increased level of investment without decimating your media budget.

This is a decision that must be made at the time the concepts are presented. The most responsible and the safest approach is the first one. The second is a higher risk strategy and definitely one not taken lightly.

But either way you are making an informed decision and not being placed in a position of being forced to over commit budget funds simply because the on-air date is too close.

I would be interested to hear some of your experiences in this area. Please leave a comment with your thoughts.