Per Gartner’s CMO survey, marketing budgets fell in 2021 as a percentage of total revenue from 11% to 6.4%. With so much uncertainty this time last year, the decline was expected, though this appears to have been an overreaction. As you begin your planning for your 2022 budget, how do you ensure that you are not caught in a similar reduction cycle? It should start with approaching the budget as part of a growth plan, not an expense exercise. Too many marketing budgets look like a marketing mix graph and justifying why you need $x,000 for email and $y,000 for trade shows. This is the quickest way to get caught in expense-cutting mode.
Instead, you need to align with your sales and ops organizations and gain a strong understanding for growth expectations and what will be driving that growth. In this approach, you take an aligned plan to your C-Suite that shows your budget as a critical part of meeting and exceeding revenue goals, not about tactics. One key for marketers is to think and talk more like the C-Suite in communicating your budget requests and goals. What are some ways to accomplish this?
Frame Marketing Budget by Segments
Darren and I both believe in categorizing your marketing spend to align with your business goals NOT the tactics that you use. We’ve seen so many examples of marketers listing their budget as 20% on website, 10% of communications, etc., and wonder why they get challenged on the effectiveness of these tactics. Who does your website focus on new or existing customers? Do you need to augment the site to enter a new market? How will your event and email programs focus on new product launches? These are just a few examples.
Think of categorizing your marketing spending as shown in this diagram:
Aligning Marketing Spend with the Business
In this format, I can look at how our marketing budget is designed to drive business. If asked how does our plan achieve growth in new customers? I can respond that we have 15% of the budget allocated towards initiatives focused on growing new customers. If the question is how much are you focused on driving new products and services? I can answer that we have 25% of the budget targeted to new products and service campaigns. Why is that important? It should align with your revenue growth as depicted in this chart:
Of course, you need to be able to answer questions on how much spending is devoted to the website or PR or email but is that as critical to the C-Suite as the segments that you are driving? By starting with growth drivers, you take away the bias around your marketing mix. Think about how the manufacturing team segments their budgets each year. An example is 45% for people and training, 10% for safety, 20% for preventative maintenance, 25% productivity improvements. It sets the stage for good discussions about whether your efforts are aligned with the needs of the business.
The second area that is more critical than ever in these uncertain times is flexibility. Consider going on the offensive and stating that 10-15% of your budget remains “uncommitted” and can be flexed in or out depending on results. If you take this approach, also be willing to ask for the ability to flex extra money if results are exceeding the plan! The key is showing leadership that 98% of your budget isn’t spent on day one gives them more confidence in committing to your proposed investments in marketing.
At Rand Inc., we can help you have these conversations and give you the platform to not only build your budgets but track performance and develop scenario plans for future periods. We believe successful marketing starts with aligned business strategies, strong planning, and meaningful measurements. This month’s videos are all about budgets. Feel free to connect with me on LinkedIn or reach out at firstname.lastname@example.org to learn more.