What Should a Community Bank or Credit Union Spend on Marketing?

How much to spend on marketing is one of the most common questions among bank and credit union marketers in peer group and association meetings every budget season. And, if you’re hoping for an exact number, we don’t have one.

What we can give you is a useful range, a look at how much banks and credit unions are spending today, and a framework for deciding where your institution should land. The benchmark means very little until you’ve answered a few questions first.

FOUR QUESTIONS TO ASK YOURSELF FIRST

1. What growth mode is your institution actually in?

• You’ve probably already had this discussion with senior leadership: Are we in maintenance mode, pursuing balanced growth, or pushing for more aggressive growth? If the answer isn’t clear, you should have that discussion before doing your budgeting. Marketing can’t budget for growth if the CFO is assuming maintenance mode and expects to reach agreement on the budget. Get aligned on the mode first; the budget conversation goes much more smoothly after that.

2. How much of your current budget is actually focused on growth?

If you’ve read our post about Marketing Budgets: 3 Buckets Banks and Credit Unions Need, you know most marketing budgets contain three buckets with different jobs:

• Bucket #1 – Community investment: sponsorships, donations, event tables, golf outings, and the relationship requests that arrive throughout the year.
• Bucket #2 – Infrastructure/tools: the website, CRM, analytics, and automation that make marketing work.
• Bucket #3 – Growth: media, campaigns, creative, direct marketing, and sales support.

All three deserve funding, but only the third is designed to produce measurable growth.

If a meaningful share of your total is committed to community obligations before the year begins, the amount available for growth is smaller than the number leadership sees on the page. Separate the spending into categories before you benchmark anything. Otherwise, you may be comparing your entire budget with a figure that represents another institution’s growth spending alone.

3. What does your strategic plan actually require?

A benchmark tells you what’s typical. Your strategic plan tells you what the budget has to accomplish.

If your plan calls for meaningful core deposit growth or a specific number of new business relationships, that goal has a cost, and you can estimate it. Build the number based on the outcomes leadership has already approved. That gives you a much stronger case than starting with a percentage and working backward. For more on this, read our post 5 Steps to Creating a Goal-Based Budget for Banks and Credit Unions.

4. Can your team actually put more budget to work?

This is the question most marketers overlook, but senior leadership may already be asking it.

The key principle here is: More money doesn’t produce growth on its own. A larger budget gives you more capacity to grow; strategy and execution determine whether you actually will. Think of a factory: More raw material will not increase output if the operation cannot process it effectively.

So be honest with yourself about what’s in place at your institution. Do you have a solid strategy? Does your team have the expertise and capacity to execute it? Do you have the right partners? Can you measure success? If the answer to those questions is no, increasing your capabilities may be a better investment than additional media.

THE RANGE: SPEND 0.05% TO 0.10% OF ASSETS ON MARKETING

As a general guideline, community banks and credit unions spend between 5 and 10 basis points of average assets on marketing each year.

What’s included and excluded from the benchmark matters. Marketing benchmarks generally exclude internal salaries and overhead, but you should confirm how charitable donations are treated. Sponsorships and events are often included, with spending varying from one institution to another. These activities, as pointed out earlier, typically do not support growth goals, so reaching the benchmark does not necessarily mean you have enough funding dedicated to your growth strategy.

Where you land inside the range generally tracks with the growth mode from the first question:

• 0.05% – Maintenance mode. You are primarily trying to hold market share and serve existing customers.
• 0.075% – Balanced growth mode. You are competing selectively, pursuing specific opportunities, and working toward modest goals.
• 0.10% and above – More aggressive growth mode. You are pursuing meaningful growth and should have the strategy, team, and infrastructure to support it.

WHAT THE CALL REPORTS SHOW

Here’s where community banks and credit unions land, based on Capital Performance Group’s analysis of FDIC call-report data and NCUA call-report data.

• Community Banks: Banks with $1 billion to $10 billion in assets typically spend 6 basis points (0.06% of assets) on marketing.
• Credit Unions: Credit unions between $500 million and $4.9 billion come in at a median of 0.118%; credit unions above $5 billion come in at 0.101%.

As you can see from the figures above, credit unions tend to spend considerably more on marketing as a share of assets than comparable banks. Keep this in mind when you measure yourself against the benchmark and compare your budget with others in your market.

One caveat: No two institutions classify the components of their reported marketing budget the same way. A $200 bonus on 500 new checking accounts is $100,000. Some institutions book that to marketing. Others book it as a promotional expense or interest expense. Same campaign, same accounts, two very different marketing budgets.

HOW TO USE THE BENCHMARK

Treat the range as a guardrail, not a steering wheel. It tells you whether your marketing budget sits in a defensible range. It doesn’t tell you whether the number is right for your institution.

Build your budget from the ground up based on the goals in your strategic plan. Once you’ve calculated the investment needed to achieve your objectives, compare the total with the benchmark.

If your bottom-up number lands at 0.04% and your institution is pursuing aggressive deposit growth, your budget probably won’t support expectations. At 0.09%, your investment may be better aligned. If the number reaches 0.14% while the institution is in maintenance mode, take another look at your assumptions before you defend it.

ONE LAST THING

When you bring your budget recommendation to your executive team, start by restating the institution’s growth mode and business goals. Don’t lead with the percentage and where it fits in the range. The benchmark supports the request; it shouldn’t become the request. A conversation about what the institution wants to grow, and what investment that growth will require, will usually be more productive than a debate over percentages.

Do you have questions about developing your marketing budget and plan? LIGHTSTREAM helps community banks and credit unions build budgets that make sense and plans that get results. Let’s talk.