Early in my career I was a brand manager and very infrequently was privy to how the marketing budget I managed had been derived. As I got promoted and got more responsibility, I started witnessing how budgets were being allocated. I’ve worked at more than seven game companies now over the course of 24 years and have been exposed to a few methods. These include a percent of revenue approach, a top-down budget, a share of voice/market budget and zero-based budgeting. Below I’ll discuss the pros and cons of each method as well as the kind of video games that typically use them.
Percent of Revenue Budgeting
This is a simple method that includes a forecast of total revenue that the product or division is expected to make in the next time period. To arrive at your budget, you multiply the total revenue by the percent allocated toward marketing.
Pros: It’s very simple, very straightforward and it’s equitable. Assuming the same percentage is given to all the products, all of the titles and all the marketing goals, no single game gets more share than another, thereby preventing the need for complex analysis and saving a lot of time. The other good thing about it is that it scales. So if a product has a very large revenue forecast, the marketing budget is equitably raised because of that percentage of revenue.
Cons: It really has no recognition for differing strategies and budgets that may be required based on those strategies or differing product external factors. It doesn’t consider whether or not your product is in a very hotly contested genre or category where your competitors are trying to outspend you to make up market share.
It also doesn’t take into account a particular unique idea or marketing strategy that may be interesting to invest in. For example, let’s say you set your percentage of revenue budget and a new social media platform explodes onto the market like TikTok. When you set those budgets, you had no idea because TikTok didn’t exist. But now a massive amount of your player base is consuming content and you’ve got an amazing strategy to launch your next TikTok presence. In the percentage of revenue budget, if your forecast isn’t changing, you need to borrow that money from some other marketing tactic that you had allocated funding to. So you need to make one part of your marketing campaign suffer to be able to afford this new marketing tactic.
Typically used for: Premium AAA console blockbuster game launches where marketing campaigns are relatively short and spending is compressed.
Top-down budgeting is when senior management from a very heavy finance background dictates how much you have to spend.
Pros: It’s fast and fairly predictable, which means your marketing team can plan for it and be ready to execute it very quickly. This method is advantageous when your competitor is slower to agree upon budgets because it enables you to get to market quicker than them, thus allowing you to take share of voice.
Cons: This approach removes any of the agency that marketing team members might have. They are not given a voice in the process and thereby could become discouraged from doing their best work because they feel their input wasn’t taken into consideration.
It also really doesn’t change with goals. Let’s say your goals change midstream, you have to ask the people that are doing the top-down budgeting for more money. For instance, let’s say the game is outperforming three months after you’ve been given your budget and it’s 20 percent over forecast. You then have to go back to the senior management team and beg, borrow and steal, or say, my games taking off and I need more money to fuel the fire. But you’re not the one that necessarily has a voice in that process.
Lastly, like with the percent of revenue model, the other negative is that it’s a fixed amount of dollars. If a new tactic that you wanted to exploit emerges, you have to borrow money from other tactics that you were planning on spending to be able to afford it.
Typically used for: Self-contained games that don’t have a live-ops or post-launch monetization strategy.
Share of Voice/Market Budgeting
This is a goal-driven method using benchmarks as targets. It requires good competitive data that deeply analyzes where your competitor is spending, how much they’re spending, the tactics that they’re using and what media mixes they’re spending against. It aims to erode market share against the category leaders through impression generation and all sorts of marketing tactics to make you look bigger than you actually are.
Pros: This is really good for products that are trying to catch up or for products that are early in their lifecycle, especially if you’ve got a really high-quality product that’s only suffering because it’s not as mature as its competitors.
Cons: It’s definitely a slower process than the percent of revenue and top-down approaches, respectively. It takes a good deal of analysis and amazing competitive intel that some teams may not be able to gather. Though one of the best tools you have for the share of voice analysis and figuring out budgets is to look at search volume, specifically on Google and YouTube. And if you’re on mobile, looking at the iTunes store search data would be important.
It also doesn’t take into consideration outliers, such as other competitors that you’re not including in that competitive analysis.
Typically used for: A game in a category where you’re not the market leader.
In this scenario, the budgeting process begins from scratch, so marketers start from $0 and build a budget that fits the strategy needed to make their product successful. This requires a very seasoned and well-rounded marketer that deeply understands their product and what is needed for their product to be successful.
Pros: It provides great agency to the marketers and the teams who created the budget. They feel responsible for the marketing dollars that they have to deploy because they were the ones that decided what that dollar figure should be.
This method can be effective for gaining market share, driving brand awareness or winning back customers, among other goals. Maybe you’re marketing a product that’s older and you’ve moved away from the acquisition phase of the product, so now you’re trying to win back loyal customers.
Cons: This is a 100 percent forward-looking process that doesn’t take into consideration anything that happened in the past; whereas some of the aforementioned budgeting techniques take a look at historic performance and spend and make decisions based on incremental increases to historic data.
Another con here is it’s a lengthy process that requires a great amount of debate between the marketers, the product owners and other people that have interest in that product on what goals should be set as the marketers’ goals may not be aligned with overall business goals.
This is a really challenging approach, but if done right, can be a very rewarding process.
Typically used for: Free-to-play business models, subscription-based business models and games with multiplayer online liveops support where there’s additional content being generated all the time.