“One day everything will be well, that is our hope. Everything's fine today, that is our illusion.” - Voltaire
Whether you’re leading a marketing department, marketing team, or marketing initiative, if you’re sitting at the tip of the marketing spear for your organization, it’s really easy to get stuck in status quo mentality when making significant decisions about strategy, positioning, staffing, technology, etc.
This is especially the case with marketing budgeting—too often, our budgets are reflective of past performance, not business needs or untapped opportunities. Clearly, previous results should inform your decisions, but allowing the past to entirely dictate the future is a terrible way to budget, especially if you’re focusing on growth.
Don’t take my word for it, take McKinsey’s. In a fantastic 2015 article on allocating marketing budgets for growth, the authors highlight why focusing on past performance falls flat:
“The problem is that budgeting criteria are often retrospective and are not aligned within the organization. The CEO may be focused on recent sales growth or how to increase EBITDA, for example, while the CMO is looking to boost brand-health scores and market share. A lack of alignment on allocation metrics usually leads to a mindset of ‘Let’s stick to what we’ve done before.’”
If you’re comfortable with your organization’s status quo and are uninterested in growth, feel free to close this tab and go about your day.
But if you recognize the pace of the market will always make the status quo obsolete, then allow me to share five research-based strategies your organization can adopt to better budget for your marketing.
Whether you’re the marketing manager for a regional business unit or the CMO of a Fortune 500 organization, if you have any influence over and insight into your team’s budget, these five strategies will help ensure your budget is most appropriately positioned to help your team use marketing to drive serious growth.
- Work backward from the results you’re trying to achieve.
- Help your team see the bigger picture.
- Give marketing control.
- Leave room for innovation.
- Budget based on campaigns. Not channels.
1. Work backward from the results you’re trying to achieve.
It’s hard to broach the subject of budgeting for growth without at least dipping a toe into corporate finance (nothing too technical here, but this is a post on budgeting).
There are multiple methods organizations use to build their marketing budgets. Some, like incremental budgeting, have been in use for quite some time, while others, like zero-based budgeting, are newer to the fold.
Traditional Budgeting Methods
- Incremental Budgeting: using the previous period’s budget and performance to incrementally make changes to the next period’s budget
- Rolling or Perpetual Budgeting: maintaining a budget that always lasts for a fixed period of time (e.g., having a budget that continuously forecasts for the next 12 months, whether it’s January or April)
- Ad Hoc Budgeting: justifying the costs of individual projects as needed
Newer Budgeting Methods
- Zero-based Budgeting: an approach in which the budget for each new period is built from scratch and every expense must be justified
- Activity Budgeting: using the costs of marketing or organizational initiatives themselves and the returns they are expected to generate to build a budget (in contrast to incremental budgeting, which looks at how much your organization spent on an initiative in the previous period to budget for the next period)
Take a step outside of the marketing industry and into the worlds of finance and accounting, and you can find a ton of literature on the pros and cons of each of these budgeting methods. Gartner covers them in their most recent CMO Spend Survey (as you can see, the Gartner team doesn’t hide a preference for the methods they believe to be more mature).
I’m not going to give you the silver-bullet solution for the specific methodology (or more accurately, set of methodologies) your organization needs to adopt to budget for marketing effectively. What I will say is the more your organization uses the costs of what you’re trying to achieve, not what you spent last year, to dictate your marketing budget, the more positioned your budget will be to fuel your growth.
2. Help your team see the bigger picture.
*Otherwise known as organizational transparency.
There is no better way to ensure your budgets will fail than for your leadership to hide their vision from every member of the team responsible for generating and forecasting results.
Case in point: suppose you have a paid digital marketing manager who is expected to double paid leads over the next year across all products. Naturally, that manager is going to suggest you increase the paid advertising spend budget in order to achieve this goal—but she arrives at her particular number by focusing on the products she thinks are most likely to produce the desired results with the greatest return on investment.
Unbeknownst to her, however, your organization plans to launch a new product line this upcoming year and wants to refocus promotional efforts to support the new product. Guess what? The budget best suited for selling existing products probably isn’t best optimized for launching a new one. And so it’s very likely your paid digital marketing manager is going to have more difficulties than necessary refocusing her efforts to achieve her goal.
And you have only yourselves to blame.
Look, I get it. Business is constantly in flux. There’s no way to perfectly predict in November what will happen in April (hence why I believe 12-month marketing plans are dead). And there are times when even the most transparent businesses have to be careful about the information they share. Expecting a big merger or acquisition? Sometimes you do have to wait before you make that announcement to your company.
But the truth is, the #1 reason why employees make ill-informed decisions about the future is because management and leadership neglect to keep them informed.
It doesn’t matter how far down an employee is on the org chart, if they’re responsible for forecasting results for your business or providing budgeting inputs, they need to be able to see as much of the bigger picture as you’re able to give.
A company cannot achieve more than the vision of its leaders. But even the best vision will still fail when it’s not properly received or understood.
3. Give marketing control.
We now have the ability to measure nearly every interaction an individual has with our products, services, and brands. From the moment our prospects first come across our name to the entirety of the post-purchase, re-purchase, and customer service experience, we are capable of mapping each of these interactions to particular individuals and making hyper-informed decisions with the data they produce.
Unfortunately, that doesn’t mean that most of us are pulling this off successfully – only 4% of marketing leaders report having a fully integrated technology stack that captures the entire buyer’s journey.
What it does mean is that now more than ever, there’s no excuse for your marketing department to lack access to the basic systems most critical to analyzing your customers’ behaviors and attributing results to marketing and sales activities.
Is your team in one of the countless organizations where marketing still has no access to these basic systems? Ask yourself these questions:
- Does your marketing department have access to and report on data from your CRM?
- Does your marketing department have access to and report on data from your customer success software (if applicable)?
- Does your marketing department have access to and report on data from your other BI technologies, like your ERP or POS system (if applicable)?
- During your last major website design, was the person primarily responsible and accountable for this process a marketing leader in your organization?
If you answered no to any of these questions, your marketing budget is set up for failure—there is no possible way you can accurately estimate the budget you need to fulfill your business’s objectives (or measure its effectiveness in doing so) if you can’t access all of the customer data you collect. This also is a problem that leadership needs to address immediately, because only they can ensure this accountability is granted.
4. Leave Room for Innovation.
Gartner’s most recent CMO Spend Survey (published in November 2017) saw enterprise marketing budgets decline for the first time since 2014 (from 12.1% of company revenue in 2016 to 11.3% in 2017).
Want to know what these enterprise marketing departments didn’t cut? Their innovation budgets, which accounted for over 10% of overall marketing budgets in both 2016 and 2017.
It’s not hard to understand why companies (even those with well-established market share, products, and business models) prioritize innovation within their budgets. In the modern world, competition comes from all directions.
Suppose you’re the VP of a large hotel chain in 2013. Things are going well for your business until all of a sudden, some company called AirBnB comes from out of nowhere to become the organization with the largest number of nights booked across its “properties.”
Yes, tackling this problem requires more than just marketing. But marketing has a pretty large role in the effort. And without a budget for innovation, what do you do in this scenario? Which part of the organizational pie are you going to cut in order to boost brand relevance to prevent further loss of market share?
You don’t have to be a $5B company to budget for innovation. If you’re spending around 10%-12% of your operating budget on marketing (like most companies are), you have room to make innovation a part of that budget.
5. Budget Based on Campaigns, Not on Channels
What happens when you focus your marketing investment on individual tactics and not on comprehensive campaigns or initiatives? You end up with a suite of fully optimized marketing channels and little-to-no business results to show for it.
I cannot tell you how many times I’ve seen organizations invest tens or even hundreds of thousands of dollars into paid advertising campaigns, email marketing, social media marketing, SEO, content marketing and more, and still fail to generate any real business value from their investments. And most of the time, they’ve adopted every best practice and optimization tactic in the playbook across each of these channels. But they’ve forgotten the most important rule of modern marketing: marketing tactics should never, ever be implemented in silos.
When you rely on channels, not campaigns, as your primary means of forecasting results and budgeting to those forecasts, you’re opening yourself up to a high risk of failure and a tremendous amount of inefficiency. Why? Two reasons:
1. You don’t control any of your channels (even the ones you “own”).
It’s impossible to forecast exactly how a specific channel will perform from one month to the next, much less year-to-year. You may have had a killer direct mail strategy in 1998, a great Flash website in 2005, perfect organic Facebook strategy in 2012, and stellar link-building strategy in 2014. But none of these were worth a fraction of their initial value when the consumer expectations and platforms they relied on pivoted and forced all of us to adapt to a new way of thinking.
When you use campaigns to set your objectives, you’re providing yourself with the flexibility to reallocate resources when certain channels fail and others exceed expectations. And when you budget for campaigns over channels, you ensure these multi-channel strategies will have the funding they require.
2. You’re inevitably going to dump time into duplicating your creative efforts, fragmenting your brand and creating poor customer experiences.
It is inevitable—when you focus on channels over campaigns, your creative team ends up working more than they have to. When your creatives are forced to write, design, shoot, or build for one channel at a time, they end up duplicating efforts without being able to plan for it. Depending on how your team is structured, you may have separate teams creating for separate channels, which opens you to the risk of creating a fragmented brand (especially if your brand standards aren’t in order).
And even if everyone is operating from a shared pool of assets and resources, you’re still wasting time and producing inefficient results because you’re forcing your creative team to produce assets without regard to where they might be used.
This point may seem counterintuitive to the benefit of planning for campaigns over channels, but it’s not at all. Campaigns allow you to consider the possible channels that will be a part of the campaign, while still understanding the overarching narrative or message you’re trying to convey.
E-commerce companies are super guilty of this—how many times have you come across an online retailer who sends you one promotion via their newsletter, one promotion via a Facebook ad, another promotion on their Instagram account, and a different one on their site? The promotions look different, feel different, and all together end up leaving a bad taste in your mouth.
As much as many of us hate to admit it, we generally want companies to know that we’re the same person on our laptop as we are on our iPhone Instagram app. And budgeting channel-first means you’re likely to plan and execute channel-first, which does so much more harm than good.
Again, I understand—there are times when it’s inevitable. Even we have a separate PR budget for our marketing that wasn’t included as part of our campaign budgeting for the year. Sometimes channel budgeting is the quickest fix. But the more you can refocus these budgets into your larger marketing campaigns, the more accurate your budgeting and the better your execution will be.
And let me clarify, when I say campaign, I don’t mean just single or seasonal pushes. A “campaign” can be a one-day flash sale or an evergreen profit-center that’s constantly running in the background. However your campaigns may be, they should be holistic, directed by multichannel campaign blueprints that take all channels and customer touchpoints into consideration.
Getting Sustainable Results
Your marketing budget should produce results for your organization. If it’s not, it doesn’t matter if it’s April, August, or January—stop everything you’re doing and go fix it.
If you need additional guidance on where to start, go download our 2018 Marketing Toolkit, which provides tools and tips you can use to improve your marketing. And if that’s not enough, reach out to us. Even if you’re not looking for an agency, we’re committed to helping organizations become better marketers—and we’re willing to take the time to help you get there.