How to allocate your client’s PESO budget

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Chip Griffin: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin

Gini Dietrich: and I’m Gini Dietrich.

Chip Griffin: And we’re gonna talk about our budgets today, Gini, and how we should split them up. How much, how much should you get paid? How much should I get paid? Right after this.

Gini Dietrich: Clearly I should get 75 and you should get 25.

Chip Griffin: Uh, sure. Okay.

Gini Dietrich: Great. Awesome.

Chip Griffin: Since you know, since, since we don’t pay ourselves anything for this show…

Gini Dietrich: 75% of nothing.

Chip Griffin: I, I will gladly give you nothing. I’ll tell you what Gini I’m feeling generously. I’m giving you 90%.

Gini Dietrich: Oh yes!

Chip Griffin: Of our combined pay for this show.

Gini Dietrich: Done. Yes, let’s do it. I love it.

Chip Griffin: Excellent. Now we’re, we’re gonna be talking about something near and dear to your heart, and my heart as well, which is a question that was asked in the Spin Sucks community. And that is if, if we’re using the PESO model, which of course you should be. If we’re using the PESO model, how should we think about the allocation of the budget amongst the different letters?

Gini Dietrich: Super good question.

Chip Griffin: I mean, you have good questions asked in your community. I mean, it’s a, it’s a smart crew.

Gini Dietrich: Also, it depends.

Chip Griffin: That is a great answer. Yes. It is not the one that people want to hear though.

Gini Dietrich: No, it’s not.

Chip Griffin: People wanna hear, well, you know,

Gini Dietrich: Do this and this and this.

Chip Griffin: They should each be 25% or you know, or a simple formula.

Like, you know, if you’re at this stage, then it should be 60% to paid and 20% to shared and all, it just, it does not work that way. But it’s, it’s something that the agencies need to be thinking about. And, and not necessarily in terms of, is there a magic formula, but you do need to be thoughtful about how you are investing your funds, the client’s funds, how you’re advising them, how you fit in.

If you’re only specializing in a couple of aspects of the PESO model and you’re relying on other agencies or in-house teams working on other aspects of it, you know, understanding how they play together is valuable.

Gini Dietrich: Yeah, so I think there are two parts to this answer. And one part is understanding your costs.

And the other part is understanding the client’s goals. So you can’t do it in a vacuum and you can’t to your point say, well, it’s 25% paid 25% earned, 25% shared and 25% owned. Like that’s just not how it works. So understanding, I think first understanding what the client’s goals are and the way I answer this in the community is, you know, it depends, right.

We have one client that we started with two and a half years ago. So January of 2020, and we started, it was mostly content because they had, they were just launching a new website. They didn’t have any content, they didn’t have any search rankings. They needed content as a foundation to build the website so that we could then do the other things.

So we spent 90%, probably 85% of the budget on owned media for two years. And this year we started to shift into shared… actually November of last year, we started to shift a, a little bit of budget into shared. We started shifting into earned in March of this year and we started to shifting into paid in May.

So we, and still, it’s still not 25, 25, 25. I would say still owned media is probably 60% of the budget. And then we split the other 40% between the other three. And it depends too on what results are and what’s happening. And if we’re in season and if it’s cyclical with, like, there are all these think factors that come into it.

So that’s the first thing I would, I would say is what are the goals and what needs to be done first and figure out the budget from there.

Chip Griffin: Right. And I love that you’ve emphasized that it, it may well, and probably will shift over time. How any organization is splitting up its budget amongst the different tactics that they can deploy.

And starting with goals is obviously essential and something that we talk about here a lot, it’s something I’ve talked about in my agency life, as someone who had a media intelligence business, I spent a lot of time really emphasizing there that you need to understand your goals before you can figure out, you know, how to measure and therefore how to, how to invest from there.

And so, you know, the goals are absolutely essential. I think the other thing that you need to think about is how quickly you’re looking to develop results. Yes. Because if, if there is a particular time pressure, then there are certain tactics that work better than others. Absolutely. Right? The longer your time horizon, the more tactics are open to you and you certainly – everybody’s gonna say, well, you know, we need to get results yesterday or, you know, we’re, we always wanna get ’em as quickly as we can or, or whatever.

But the reality is that there is tremendous payoff for some of the more slow burn activities that you can undertake. Owned, for example, very rarely has an immediate result. It can, but it’s rare. Owned is very much that slow burn, long term investment that everybody frankly ought to be doing to one degree or another, because it’s going to pay off over time.

But if you need results in the next 90 days, I probably wouldn’t lean into owned. Right. If I need to get results that quickly, I’m probably gonna lean into paid, correct. And really focus on paid that is driving intent. So as close to the bottom of the funnel, as possible, as opposed to top of the funnel, that’s build by email list, let’s get people to subscribe to my newsletter. You know, that’s not how I would deploy if I need it. And I’m, I’m emphasizing need it to generate results that quickly.

Gini Dietrich: Yeah, I, you know, it’s funny it, I was jotting some things down as you were talking, because I think that these are really interesting tidbits. So the first is understanding client’s goals.

The second is how long are they willing to invest? Is this a year? Is it two years? Is it three years? And can you craft the plan for that? Or to your point, do they have to see results from the agency in the first 90 days? Okay. Also, what are they willing to invest in top of the funnel? And top of the funnel is it’s really…

and we’ve talked about this before. It’s brand awareness, it’s driving website visitors, it’s driving engagement. And those are things that can be measured in a sort of vanity metric sort of way. But doesn’t, isn’t measured in cold, hard cash. So you have to figure out if they’re willing to invest in that. And that’s going, those kinds of things are gonna help, that those kinds of understandings are going to help you determine how to, how to craft the plan and how to split the budget.

Chip Griffin: Mm-hmm . Yeah. And it’s, you know, I think that that agencies really need to understand where their clients’ heads are at on some of these things. And it’s one of the reasons why the PESO model at, for an agency is so much more beneficial than specializing in just one of those things, because a mix often allows you to respond to that client urge to see more immediate action and results.

While also being able to work on those longer term things that you know are really going to pay off for the client. And so, you know, there are very few clients who are patient enough to sit there and say, okay, I’ll let you undertake the Warren Buffett strategy of buy and hold and, and just, you know, I’m gonna let you work on stuff that’s, you know, that’s gonna see most of its results two or three years down the road. I mean, most clients just aren’t gonna put up with that. It it’s, that’s not how they’re wired their bosses aren’t wired that way. Everybody wants immediacy. But if you can, if you can work on those things, but do some, some activities that help you to generate more traffic, more activity and hopefully more revenue generating activity of whatever kind your client has, that’s going to help in making you more sticky with the client.

So you can really work on those long term plans that you know will work.

Gini Dietrich: Yeah, absolutely. And you know, when people ask me why the PESO model and why we came up with it. I always say that, you know, in the very beginning of my agency, we, we did media relations. Like that’s what we did. And the thing about media relations is it has peaks and valleys.

So you’d hit the Wall Street Journal, the LA Times, the Chicago Tribune and the New York Times all in one week. And then you’d have this valley where there would be nothing. Or there might be like ancillary articles and smaller pubs because they’ve taken from the bigger pubs, but like nothing. So you’d have these peaks and valleys and during the valleys, clients would get angry and upset and didn’t understand what you were doing. And you’re like, I just spent my entire year’s budget on the last week. Right. But they don’t understand that they really have this perception that you just pick up the phone and call your friend and say, Hey, can you run this story? Right. And so we were, and you know, and this is 15 years ago now, but we were really trying to figure out how to fill those valleys.

And that’s exactly to your point, which is you’re going to have great earned media efforts. But they’re not gonna come every single day. And in the meantime, you may be using some paid to help with not just top of the funnel marketing, but also to retarget and bring people in to bottom of the funnel. And you’re going to have content at the top, at the middle and the bottom.

We actually call it a, a bow tie now instead of the funnel. But, you have content for all of those things and you also have all the social media activities that are keeping you top of mind. While all this stuff is working. So you now you have something that’s pretty steady and working along versus these huge spikes and huge declines, huge spikes and declines.

You have something that’s pretty steady.

Chip Griffin: Yeah. And it also allows you to layer value on top of the work that you’re already doing in one area. So if you’re, if you get that media hit, you can use shared media to get it some more attention. You can use owned media to amplify it. Or the owned media may have been what provided the opportunity for the earned media coverage in the first place.

And you can certainly use paid to boost the attention that, that article or TV piece or whatever is getting. And so you want to try to figure out how you can bring these all together in a mix, because that allows you to have a greater impact. And the reality is that things like owned, which you and I love.

We create lots of owned content for ourselves, for clients. We encourage it, but owned on its own, it ain’t field of dreams.

Gini Dietrich: No, it’s not.

Chip Griffin: You don’t publish content, and then just, you know, go and write the next article or create the next video. You’ve gotta do things to get it out there. How do you get it out there?

Through the other aspects of the PESO model. And so as an agency, you need to be thinking about how all of these different things come together. And it’s not just about how do you allocate your budget. It’s how do you take a budget and get the most you can from it? And how do you make sure that you are, you know, igniting things that will turn from a slow burn, into a faster burn down the road?

Gini Dietrich: Yeah, absolutely. You know, I, we always say. It, it should have been named OESP or OSEP instead of PESO. It’s harder to remember though. See, I just had to think about it.

Chip Griffin: It, that really doesn’t flow off the tongue.

Gini Dietrich: It does not, but really the foundation is, is owned media, right? That’s gonna create all the stuff that you need to build credibility.

And then you’re going to use earned to, to give it that rubber stamp or to give you that credibility. You’re going to use shared to get it out into the, to the ether and make sure that your audiences are seeing it and you’re use using paid to amplify it. So owned media is usually the foundation. But you made a really good point earlier, which is if you’re selling widgets, if the client is selling widgets and they have to sell 300,000 widgets before the end of the year, you’re not going to use owned media as your foundation, you’re gonna use paid media and you’re gonna get out there and you’re gonna go, you know, get that budget going and, build that so that you are helping them sell their widgets and then perhaps bring in the other stuff.

So it just really depends. And how you allocate that budget depends on what, what the goals are as well.

Chip Griffin: Right. And, and that’s why it is so important as we emphasize all the time to ask questions of your clients and really understand what they’re trying to achieve. Understand their expectations, make sure that the work that you’re undertaking as an agency can match those expectations or get them reset at the beginning.

Don’t wait until later on when they say, well, you’re on this owned media strategy, you didn’t tell me I wasn’t gonna get a 10 X increase in sales in the first 90 days. Right. I’ve got these quarterly numbers that, that we’ve gotta hit. And, and the sales team is all over me cuz we don’t have enough MQLs.

And so therefore it’s a problem. You’re not doing your job. Make sure you get those things with clarity from the beginning, and you’ll be in a much better position to understand how you can allocate the resources that you are being given as an agency and how to work with the other resources that the client may have deployed elsewhere.

Gini Dietrich: Absolutely. You’re yeah, I’m laughing because yeah. The other thing I think you have to think about in this two part equation is what it costs you. So you may very well, like we don’t do paid media internally at my agency, but I have agencies that I work with. Right. Or depending on how, how big the budget is, I have solopreneurs that we work with. And I know how much it costs. Right. I know how much it costs me to hire them to help. And then I have to figure out what kind of profit margin I want on top of that, and that’s how I figure out what it’s gonna cost the client. So if they’re saying to me, I want your agency to run an entire PESO model program.

It’s not an insignificant amount of money. If they’re saying to me, I want you to only do owned media, which we would do. But, if they’re, that’s what they’re saying. If they’re saying to any agency, we want you to do content marketing, you have to figure out, do you have the writers on staff. Do you have to contract because of a special expertise or technical expertise, what does that cost you?

How much time is your team going to spend and what percentage, what percentage of their time or their salary are you going to be allocating toward the client? And then what other things do you have to consider: cost of doing business, software, things like that, that you consider into that price before you can say, oh, well, I think it’ll be $5,000 a month.

And suddenly you’re working $15,000 a month in time.

Chip Griffin: Right, right. Well, and that’s part of the problem because you’ll have an agency that will have a client say, you know, I’ve got 5,000 a month to spend on a content marketing program. And so you sit down and you say, okay, well, you know, we come up with a $5,000 budget.

Is that $5,000 budget actually gonna help them meet their expectations? Can you include enough in there, right. That you’re able to create the quality content, but also do the things that you need to do in order to promote it, to get the eyeballs on it. Because if not, then you are running the field of dreams strategy.

Right. Which just does not work for 99.9999999% of the people.

Gini Dietrich: It does not work. That’s I would say it probably doesn’t work for a hundred percent of the people, but there might be the .00001%.

Chip Griffin: You gotta leave open the possibility that there’s that exception.

Gini Dietrich: Yeah, I think you’re right. And you know, I know that numbers are hard for agency owners.

I know that this is not something that we enjoy doing, but even if it’s as simple as a spreadsheet saying, okay, I know I have to allocate 10% of employee A, B and C of their time. I know I have to allocate 15% of my time and I have to bring in two contractors, we have a good baseline of what it’s gonna cost, right.

Then you can start to, if you have somebody who’s adept in accounting, on your team or an accounting firm that you work with, maybe you can have them help you just from a percentage perspective. What else you need to add in? We usually add in, depending, but between 33 and 40% for all the other stuff. And then we look at it at the profit that we want to keep.

And we add that in as well. And we say, okay, this is how much is going to cost us. This is the baseline. We’re gonna go to a client and we say, we can do this and this and this for the baseline. Or we can do this, this and this for this much more, or this, this and this for this much more and give them a choice.

But we do not ever go below that baseline. If they wanna go below that baseline we reduce the number of hours and the deliverables.

Chip Griffin: Right. And, and we’ve been addressing this so far from the perspective of an agency, sort of asking the question itself, right. And, and how should we be handling it ourselves with clients or putting strategies together.

But an agency also needs to be prepared to answer this question from a client, because if you haven’t gotten this question, I’m sure you will, at some point in your agency’s life cycle and you’ll have a client come to you and say, how much should I be spending on content marketing? On a website? On social ads?

Yep. And so, and so you need to be prepared to have that really solid conversation with them. So you should start by saying it depends and, and you should then start walking through that exercise with them, where you understand what they’re trying to accomplish and you, and you explain to them what the trade offs are.

Right. You can explain to them in a sensible way, how, if you invest in one today that may have a shorter term result, but others may have a better return on investment over the long term. Right? So, you know, you have to decide in some cases, you know, do I want some return in 90 days or do I want a bigger return over 9, 12, 18 months?

And, and if you help your clients understand what these trade offs are, you’ll be in a better place. And the challenge that we all have is that when we’re having that conversation with a client or even a prospect, we want to do whatever it takes to win the business. Right. And so our natural inclination is going to be to give them an answer that they want to hear and/or an answer that allows them to, to give us the most money.

And so, right. So you have to really resist that urge to jump into that conversation and, and tell ’em, well, you know, we’re an owned media agency, you should lean into content production and all the, those paid agencies they’re just rubbish. And they, you know, it doesn’t work and all that, and it’s not true.

Right. All of the tactics can work. And it’s really just understanding where they fit based on what the particular needs of the client are. And you’re better off answering these questions honestly, and helping the client work through a sound exercise of evaluating their options, than, you know, just trying to do that money grab that we’re all tempted to do.

Right. Cause we all want the revenue and I, I get it. I’m not, I’m not shaming you for doing that.

Gini Dietrich: Absolutely. Yep.

Chip Griffin: But you will end up with a bad experience. You will end up with an unhappy client or you’ll be unhappy because you’re over servicing and not making the margins you want. So don’t make people unhappy, get to the right result at the start and you’ll be in a much better position over time.

Gini Dietrich: Yeah, I think that’s absolutely right. And you know, like I said, numbers are not fun for most agency owners, but this is something you have to get really good at. Because otherwise you’re gonna be really excited when they, you sign a contract for more money than you’ve made before, but really frustrated six months in when you’re either over servicing, not making a profit, you feel like they’re taking advantage.

They feel like you’re not getting results and that’s as fast as it happens. Six months. Sometimes faster. So do yourself a favor right now and figure it out in the beginning so that you don’t have those frustrations in the end.

Chip Griffin: So as always, it depends, ask questions, be realistic, and hopefully you’ll end up with an outcome that you’re happy with.

And more importantly, your client will end up with a result they’re happy with as well.

Gini Dietrich: Amen.

Chip Griffin: That will bring to an end this episode of the Agency Leadership Podcast. I’m Chip Griffin,

Gini Dietrich: I’m Gini Dietrich,

Chip Griffin: and it really does depend.