Team in blue looking at a should cost analysis for marketing procurement

A Guide to Should Cost Analysis & Cost Modelling

An in-depth overview into should cost analysis and how it can help marketing departments with regards to marketing procurement and budget management.

As a marketer, visibility into your costs is always going to be a priority when your goal is to ensure every dollar of your marketing budget being spent delivers exceptional results. 

But how do you know what your deliverables, agencies and assets should cost? You need to know if your agencies are charging you competitive rates, if the latest price increase is in line with the overall market, or if you could make better use of your marketing budget.

You would want to know if you’re paying a premium for your agency or your suppliers or if your agency costs are on a par with everyone else. And you’d like visibility into every cost factor so you can better manage your marketing budget, KPIS, metrics and ROI.

Which is where should cost analysis comes in. 

What is Should Cost Analysis?

Should cost analysis is also known as a cost breakdown analysis or should cost modelling.  It is often defined as “a forecast of what a service or project ‘should’ cost over time”.

It’s a very simple concept that can help establish how best to allocate your marketing budget and which deliverables might be the best option for your campaign.  

Using data to assess elements such as resources, skills, inflation, profit margins, market demands and more can help you determine if you’re allocating your marketing budget effectively.

The origin of should cost analysis remains debatable with some sources citing the US Department of Defense as a way of optimising procurement.                                                                                                                                                                                             

Regardless of where it originated from, it’s a way of analysing costs that’s more proactive than traditional models of cost estimation and allows for everyone involved in a project or department to have full visibility into costs and budgets. 

CMOs can use should cost analysis to help them to plan their campaigns and marketing budget to get the most from their marketing budget.

Why is Should Cost Analysis Important?

There are several key reasons why marketing can benefit from a should cost analysis. These include:

  • Should Cost Analysis gives you a competitive edge when it comes to negotiating with agencies and suppliers because you’ve taken the time to unpack real costs across multiple touchpoints and can discuss pricing from a point of strength. Accurate benchmarking data plays a powerful role in supporting your should cost analysis and ensures you have the right information when entering into agency negotiation. 
  • Should Cost Analysis can improve your profits because you know what things should costs so you can plan your marketing budgets from a known foundation. You can plan ahead with realistic marketing budget allocation, plan for risk and unexpected scenarios, and minimise unnecessary spend. It also allows you to plan for price volatility and fluctuations which can make a big difference to costs and budgets.
  • Should Cost Analysis helps find the agency that fits your budget without compromising on costs and quality. When you have a clear understanding of what something should cost and what is needed to operate optimally, you can make an informed supplier choice that isn’t built on a foundation of cheaper. Instead, you build lasting relationships with agencies and suppliers built on a foundation of mutual respect. 
  • Should Cost Analysis can help marketing and marketing procurement build a strong relationship that relies on data and facts. With both teams working from the same data and on the same page changes the dynamic and eliminates the issues that traditionally affected decision-making and collaboration. 

Tools for Should Cost Analysis

RightSpend helps marketing and procurement with their should cost analysis. Providing real-time data that enables them to test out theories and ideas before committing to budget allocation and scoping a project out in detail. 

Using the data from the RightSpend platform, you can empower agency negotiations as you know how much your scope of work and deliverables should cost. With a jumping-off point from robust data ensures that you can confidently work towards a fair price for the work, or request answers as to why there is such a price difference.

Tools for Should Cost Analysis help teams to be more efficient with their marketing procurement process and streamline the workflow for both teams.

How to Perform a Should Cost Analysis

Performing a Should Cost Analysis without RightSpend entails an investment of time and resources to ensure that you have accurate data at hand. 

Step 01: Unpack what your team needs to complete and manage your marketing projects and strategies. This includes everything from the types of agency, suppliers, employee resources, marketing tools and more – all of the inputs required to make your marketing a success.

Step 02: Outline what processes need to be in place to streamline engagements across all of the elements. Here you need to look at the costs involved across labour, equipment, overheads, profit margins and more.

Step 03: lace a clear cost next to each line item. The cost should show exactly what each resource, deliverable, asset, and agency should cost based on the data you’ve gathered through experience, research or the RightSpend should cost analysis tool. The goal is to establish a realistic estimate of how much your marketing campaigns and strategies should cost based on all the resources you will need to make them work. To do this accurately, you need up-to-date insight into actually negotiated agency rates, not just rate cards published for public knowledge. It is this area that many companies will skip over, and use ballpark numbers because of the time and resources needed to research these figures. With a tool like RightSpend you have accurate real-time information at your fingers.

With all of this information you can prepare a should cost analysis of the whole, and also look at how you can look to adapt your deliverables to get the most bang for your buck. Marketing Procurement can often utilise this data to establish how marketing can deliver more value from their marketing budget. And Marketing can use this data to decide where they might better spend their budget for bigger impact. 

Should Cost Estimate vs. Actual Cost

When you compare should costs with actual costs, you can really help fine-tune your spend planning. Marketing  and procurement can work closely to ensure you creation of realistic budgets that align with company objectives..

Cost modelling balancing your should costs versus your actual costs will give you the opportunity to see any imbalances or variances that previously may have gone unnoticed. These could be increased costs or reduced costs – you may find you can save money rather than spend more if you have a realistic view of expenses. You can also increase the efficiency of your budgeting process because your visibility into costs will move from reactive to predictive.