With rising inflation and recession fears, we are already hearing business leaders talk about pulling back marketing expenditures for late this year and 2023. I’ve been through this cycle with many teams and want to share what we believe is an ideal approach to budgeting in an uncertain market. Marketing leaders need to think about their budgets not in comparison to previous years, but how do you fuel the revenue growth that is expected in 2023. By evaluating how you plan to reach your growth targets via existing or new customers and markets as well as your product and service portfolio, you can build a defensible marketing budget that may show the need for more investment or similar to what you have in 2022. Looking at it in such a fashion is far easier to justify than saying you need $x for website upgrades, email campaigns, and advertising. Leading with tactics and a marketing mix approach 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 of 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 Customer and Product Segments
I 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% on 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 for new products and service campaigns.
With the initial reaction to a potential recession, many in the C suite are thinking about getting growth but with reduced expenditures. By approaching your budget in this manner, you can see if that passes the sensibility test. If growth is minimal and focused on existing customers and products, then marketing expenses can likely be reduced. If, however, you are looking to grow by launching new products or entering new markets, investments will need to be made.
Your marketing budget chart then 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, and 25% for productivity improvements. It sets the stage for good discussions about whether your efforts are aligned with the needs of the business.
Leave some of your budget available for unforeseen needs
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. Now 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 1 gives them more confidence in committing to your proposed investments in marketing.
Unsure how to get started? I 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. For more information reach out to us at www.randinc.cc.