Three Ways to Tell if Your Marketing Budget is Sufficient to Support Growth

Tom Sullivan

CEO

Community Banks struggle when it comes to assigning marketing budgets.  The struggle starts with a lack of confidence that their marketing investments will actually produce a predictable return.  That’s completely understandable for bankers who can measure, with great specificity, the contribution to business success of any number of products, investments and levers.  If you can predict cost of funds, yields, net interest margins, non-interest income, and loan production by product and by loan officer, shouldn’t you in this modern day be able to measure the ROI of marketing investments?  The answer to that is yes, but many community banks are not equipped to plan marketing with predictive ROI measures.  We will address predictive ROI in future posts.  For now, we are mostly concerned with the bigger question: “how can you quickly tell, at a 30,000 foot level, if your marketing budget is sufficient for growth?”  Here are three ways to gauge that:

1.     Peer Analysis - Banks are great at peer analysis.   We analyzed 5002 community banks between $0 and $10 billion in assets, and regardless of size, found that the average marketing budget was .07% (7 basis points) of assets.  Upon further analysis, we noted a positive correlation between consistent, meaningful annual increases in marketing budgets and accelerated growth in assets and revenue.

2.     Market Share – FDIC Call Reports provide all sorts of data.  We use that data to look at the market share trends for our clients and competitors in deposits by branch, by markets and in total.  Iyou are losing market share, other factors aside, you are very likely not investing enough in marketing.  The rate of loss is a gauge as well.

3.     Market Opportunity – You can get a better understanding of market potential and growth priorites by analyzing both consumer and business demographics and trends using public and privately-curated data.  You can then identify and estimate available market growth opportunities and priorities by business unit, product line or target prospect. With agreement on priotized market opportunities, you can develop integrated marketing and sales strategies and tactics. Decisions can then be based on your bank’s strategic positioning and the predictive ROI of each opportunity.

A final note: Many business and academic studies have been undertaken across industries that demonstrate that those organizations that increase their investments in marketing, consistently grow market share.  Growing market share is critical because it is directly related to growing profitability and shareholder value.  So, if you are unsure if your marketing budgets are appropriate, start examining where your institution stands versus its peers and in relationship to both current market share and future market opportunity.  If you need some help in this endeavor, our experts are happy to assist.