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What's your marketing R&D budget?

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When was the last time you presented a pie chart of your annual marketing budget that had a slice for research and development? The average technology company spends 14% of its revenue on R&D. Aerospace and defense companies spend 5%.

It’s hard to think of many disciplines that have changed more than marketing in the last 10 years.  Just think of what that pie chart of your budget looked like a decade ago. No slice for social media. Salesforce.com was just two years old. Lead automation applications barely existed. Marketing was a totally different ballgame.

So how do you keep up? At Approva we take a disciplined approach to what I call our “marketing R&D budget.” Each year we dedicate 5% of our marketing programs budget to R&D. And each year the lessons we take from our R&D efforts dramatically reshape the next year’s budget. Here are the two key questions you have to answer to do something similar in your organization.

How much should you spend on R&D?
In short, it doesn’t matter as long as it’s more than zero. The right range is probably somewhere between 3% and 8%. If your budget is $1 million that’s $30K to $80K.

Where and how should you spend it?
Where and how you spend your R&D dollars is up to you. At the end of the day each company has a unique audience, market and set of competitors—not to mention a unique mix of existing marketing programs and tactics.

At Approva, to ensure that we’re spending real R&D dollars and not just reallocating the budget to other line items, we make sure it passes the following four tests:

  • Is this something we’ve never done before?
  • Is this something we would never have tried if we hadn’t set aside an R&D budget?
  • Is it OK if it’s a total failure?
  • If it’s a success will we do something different next year?

Experimentation can get radical pretty quickly. But it doesn’t have to. If you don’t have enough R&D money to launch and staff a virtual community for your customers, try something simpler. Run a virtual conference, commission a series of ebooks, experiment with ads on Facebook, create a microsite to support your campaign, develop a video series. For those with even smaller budgets go to a new event, do A/B testing on your e-mails or buy a mailing list from a new vendor.

One way you can add an additional twist to encourage innovation and ideas within your team is to turn it into a contest where the team member that puts together the best proposal gets to spend the R&D budget. You’ll quickly be flooded with more good ideas than you can fund.

Like any R&D program you’ll have your fair share of failures and successes. In my experience, the failures are often more useful than the successes. Better to spend $10K to experiment with a new campaign that pushes the envelope than to sink $200K into a big launch that you can’t pull back from.

At Approva we’ve had our fair share of successes, too. Here’s a short list of what resulted from our R&D budget:

  • Our two most successful creative campaigns both emerged from experiments funded by our R&D budget.
  • We’ve completely redesigned our social media initiatives based on test-runs funded by our R&D budget.
  • We’ve dramatically increased the percentage of our budget we spend on interactive Web content.
  • We’ve changed the vendors we use to build and cleanse our database.

What are you spending your marketing R&D budget on? I encourage you to share your experience via the comments below.

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