Rethinking Marketing Budgets for Construction Businesses While Adapting to the AI Era

Among the many questions that generative AI is sparking in the world of brand and marketing, one of the more vexing ones has to do with the allocation of annual marketing budgets.

The question many brand managers and CMOs are asking is this: Given the capabilities of this new technology, how should my marketing budget change?

Inherent in the question is the fact that marketing budgets should change, which is a perspective I share, especially in the construction space. There’s an enormous first-mover opportunity right now that smart, fearless, forward-thinking companies are exploring, and the opportunity requires an investment.

But many marketers are unsure how to think about this. Where should these investment dollars come from? Should they come from the current marketing budget, or should these dollars originate elsewhere?

Before I answer that question, let’s first talk about marketing budgets in general.

Understanding the numbers

Marketing budgets are often correlated to annual revenue and expressed as a percentage—and it feels like the recommendations haven’t changed much over the last twenty or thirty years, maybe longer.

For established companies, the range is typically five to fifteen percent of annual revenue. For high-growth companies, you’ll see ranges between twenty and fifty percent.

Of course, it also fluctuates by industry.

In blue-collar organizations, that percentage is usually much lower, and it’s not uncommon to see numbers that are one-to-two percent of annual revenue. (This is a mistake.)

Gartner’s most recent annual CMO survey, which came out in May of 2023, showed that marketing budgets, on average, fell from 9.5% of company revenue in 2022 to 9.1% in 2023.

This is particularly interesting in light of gen AI investments and suggests that CMOs weren’t quite sure how to approach gen AI initiatives last year.

The report also highlights that marketers are increasingly pressed to do more with less.

Inflation and economic pressures further exacerbate this crunch, compelling marketing leaders to make strategic decisions that ensure maximum impact for every dollar spent.

In response, marketers are recalibrating their strategies, focusing on high-ROI activities, leveraging data for smarter decision-making, and reallocating resources to prioritize efficiency and effectiveness.

The emphasis is on creating leaner, more targeted campaigns that drive meaningful engagement without breaking the bank.

Part of the strategy of doing more with less aligns perfectly with what gen AI can help with.

In a recent article by McKinsey titled “A generative AI reset: Rewiring to turn potential into value in 2024,” the authors write: “Much of gen AI’s near-term value is closely tied to its ability to help people do their current jobs better. In this way, gen AI tools act as copilots that work side by side with an employee…”

While doing more with less is certainly one way to approach things, thinking of marketing as an investment is also a tactic that organizations can take, choosing to lead rather than retreat in the face of uncertainty.

“Instead of focusing too much on deep and blunt budget cuts,” write the authors of “Beyond belt-tightening: How marketing can drive resiliency during uncertain times,” companies can take an investor mindset view, with a more granular approach to marketing dollars: cutting back where they’re currently overspending but also investing more where there’s greater potential for longer-term ROI. We think successful companies could find savings of 10 to 20 percent by eliminating inefficient spend. If they then reinvest those savings in more efficient efforts and targeted campaigns to drive 5 to 10 percent growth, they can create distance from their competitors.”

Another way to think about the reinvestment of those savings is to apply them to internal gen AI initiatives.

For many companies right now, all we’re really talking about is piloting some sort of gen AI software (likely a marketing software like Jasper.ai or an SEO/content strategy tool like Marketmuse.com), or buying licenses for your LLM of choice (ChatGPT, Claude, etc.)

For more ambitious companies, the lift might be a little heavier and include building out a private LLM trained on proprietary, industry-specific data belonging to your organization, which often includes internal documents, customer interactions, marketing material, and specialized knowledge bases, combined with retrieval augmented generation (RAG) techniques.

For example, an equipment rental or construction company could pilot an AI-powered chatbot on their website to answer frequently asked questions and provide personalized recommendations to potential customers.

They could also use AI to analyze their vast library of project and maintenance data. By experimenting with these initiatives and measuring their impact, companies can gradually scale up their AI investments and stay ahead of the curve.

However, regardless of which scenario your company is in right now, here’s a framework you can use to think about your marketing dollars.

Marketing budget breakdown

Start with ten percent of your annual revenue to get your base number.

Take that number and split it 55/35/10 between digital marketing, traditional marketing, and AI-related initiatives.

The digital breakdown

For your digital spend, focus on the following:

Take ten percent of your total digital marketing dollars and use them for research. Survey your customers. Field a research study. Perform a set of qualitative interviews. Do whatever feels right.

The point here is to surface some insight that allows you be more targeted and thoughtful with your total spend. If you don’t have the right strategy, the tactics won’t matter.

To get the right strategy, you need to do your homework.

Next, take what’s left of your digital budget and split it between the following tactics:

Content marketing: Optimizing for current SEO best practices is essential, at least for now, but equally important is ensuring your content is included in future data training sets for major public models.

As these models continue to train on new common-crawl data, the more your unique content shows up on the internet, the better. However, the caveat here is that the content needs to be unique. It needs to have your unique perspective, your unique point of view, your unique solutions to your customers problems.

The more that this type of content shows up in the data training set, the better your chances are of showing up in an LLM’s response.

User behavior is changing and right now and this is the best way to ensure that your company appears when someone types into an LLM “what are the best construction companies” or “give me a comparison of the top ten crane rental companies in the US.” Worst case scenario, you do more thinking, more writing, and more people find your site the old-fashioned way.

There’s literally no negative to investing in content marketing.

Local SEO: This may change in the near future, but for now, it still makes sense to invest some time and money in local SEO. Optimizing your website for local search is crucial for blue-collar businesses, as many rely on local clientele. This includes optimizing your Google My Business listing, ensuring your NAP (Name, Address, Phone Number) consistency across the web, and targeting local keywords in your website content.

Email marketing: This one almost needs no explanation. You’ll never own your audience, but you’ll always own your email list. Communicate with your customers and stakeholders on a regular basis and give them useful information they actually need. Don’t send a “newsletter.” Don’t send company updates unless they matter to your audience. Send real thought leadership that answers real questions and delivers real value.

Social: I have a contrarian view on this now. I think social is largely a waste of time and money for blue-collar businesses. Social can still be a part of your strategy, but use it organically. Use it to share your content and interact with people naturally. Forget about strategy and posting schedules and all the rest of it.

Use it if you want to—or don’t.And consider the fact that I’m not the only one who thinks this either. Gartner predicts that by 2025, a perceived decay in the quality of social media sites will push 50% of consumers to significantly limit their use of major platforms.There are better ways to spend your time and money.

The traditional breakdown

For your traditional marketing spend, take your thirty-five percent and divvy it up between the following tactics:

Print ads: For many blue-collar businesses, it still makes sense to run print ads in the industry’s best trade publications. If you’re going to do it, though, do it right. Run a full-page ad and pay for good placement. Also see if you can work out a discount on digital ads on the magazine’s web properties while you do it.

Direct mail: There’s a reason companies like Snap-On Tools still print and mail a million catalogues a month. Digital fatigue is a real thing and direct mail is a cost-effective way to get inside the offices of your customers on a regular basis.

Trade shows and events: Almost nothing beats an in-person interaction. This is how many of you started your businesses (marketing at trade shows) and I can’t imagine a scenario where you wouldn’t want to do this.

Out of Home (OOH): Again, my opinion on this one isn’t a popular one, but I think OOH is about to have an even bigger moment than its having right now. Billboards, transit advertising, construction site signage, benches and street furniture—they’re all incredibly effective ways to keep your brand in front of people’s eyeballs. And while everyone else is focused on paying per digital impression, you can pay once, and let the impressions/drive-bys/head-turns stack up.

The AI breakdown

Take the ten percent that’s left of your marketing budget and allocate it to AI initiatives.

If you don’t already have one, create an AI council and an AI policy (essentially, the rules for who will use AI and how they will use it), and then pilot, experiment for a period of time, and document your results by measuring efficiency gains, cost savings, and overall effectiveness.

Adjust accordingly.

Your mileage may vary

As with everything, modify as you see fit, but this budget framework will give you a good starting point as you think about marketing during these exciting—and uncertain—times.

By adopting an investor mindset, reallocating budgets to prioritize efficiency and effectiveness, and experimenting with AI initiatives, blue-collar organizations can position themselves for success in this new era.

The key is to remain agile, data-driven, and open to new possibilities.

As the marketing landscape continues to evolve, those who embrace change and harness the power of AI will be the ones who thrive.