Here’s an F’in’ practical set of Fundamentals as you prepare for a new year. Jeff Clark has offered up some pearls from years of dealing with the eccentricities of working within the business to get the budget CMOs need to be successful.
If your fiscal year aligns with the calendar year, you’re probably in budget hell right now. Are you getting your next year’s budget approved? Just starting to think about it? Waiting until after New Year’s? Waiting for the word from on mount high?
All CMOs must deal with the peculiarities of their business. Does yours do a good job of setting goals and allocating budget accordingly? If not, it’s still good to know what good looks like.
We at RockstarCMO are well experienced with the highs and lows of budgeting. I led corporate marketing at a software company that started their midyear review and planning for the next right after Q2 closed. Two stops later, I was at a company that didn’t finalize goals and budgets until Q1 of the next year. That was frustrating!
To help deal with these frustrations, here are my fundamentals of good budgeting for marketing leaders.
#1 – Benchmark Your Budget vs. Peers
It helps both you and your exec team to know whether your marketing budget is on a par with peers as a percent of total revenue. When I say peers, I mean companies that look like yours, e.g., similar size, industry, maturity, and multinational vs. domestic. Gross generalizations, such as marketing spend should be 6% of total revenue, ignore the fact it varies widely by industry, maturity, and size, ranging from 2 to over 10%. Several industry analysts do a good job of amassing this data.
If your budget is higher or lower than peers, can you rationalize that? If it’s higher, you should be in investment mode, trying to gain market share or early leader status. If it’s lower, are you a large, mature organization in an industry that invests more in sales or distribution than marketing?
If you’re under-invested, the data can help convince the executive team that’s it’s time to invest more in marketing. I stress help because you need a plan for where to invest. This can be a tough conversation as you may hear, “But we’re different.” That’s why you need peer data and a plan.
The next set of benchmarks to look at are the allocations across staff, programs, technology, and outsourced services. Again, don’t trust general numbers (e.g., 45% staff, 45% programs, 5% each tech & services), look at a peer set. If you’re 70% staff and 30% everything else, does that make sense?
You can get into more minutia, but ask if it’s worth it. The purpose of these benchmarks is to determine what levers you need to pull for new investment.
#2 – Find your path to ROI
When advocating to invest in marketing, it helps to be able to say, “For every Dollar, Pound or Euro invested, the company will get a business impact or outcome in return.” That business impact could be a contribution to pipeline, brand improvement, increase in sales productivity; what matters is that marketing is demonstrating an outcome that is critical to the business.
Of course, you want to be able to demonstrate payback both historically and your plans for next year. Setting goals for the function that show impact enable you to express payback at its simplest, highest level. Goal achievement divided by marketing budget equals marketing ROI. Pretty simple!
Check out episode #189 of our podcast, The Big Payback, for more background on demonstrating ROI.
That brings us to our another fundamental, which enables you to express ROI at the next level down.
#3 – Allocate majority of program expenses to campaigns
To maximize the impact of your program investment … and avoid the irritating ROI debates about individual tactics; create integrated, multi-tactic campaigns directed at your target buyers. You can streamline your operations by having a small number of integrated campaigns, and ladder your top-line impact goals down to campaign level. In other words, your pipeline contribution goal should be the sum of the pipeline contribution from the three, four or five campaigns in your arsenal. Now, you can have an ROI discussion based on the efforts to engage target buyers.
It is wise to balance your spend by between campaigns that deliver business impacts and shared services (e.g., creative, operations, technology) that merely support them. Shared services are important, even necessary, but they don’t result in business impacts, so put the majority of your ‘wood’ behind the campaign arrows.
#4 – Determine the right budget allocation model
Most CMOs would love to centralize the control over the entire marketing budget. However, that may not work with the business’s operating model. With a centralized model, the CMO can easily put a focus on key initiatives and control spend. But if the company decentralized over geographic territories, product lines or business units, then that control will need to be shared with marketing leaders that also report to their respective sales or BU leaders. With distributed budget allocation, you may cede some control, but get better alignment and collaboration across the business.
Budget allocation models are a rabbit hole that we can go down at another juncture, but this may an opportunity to leverage the integrated campaign model mentioned above. The campaign approach enables the CMO to construct well targeted activity that aligns with the buying interests of the sales or BU leaders’ customers. Plus, it puts a pipeline or brand quota on the back of the campaign managers who need to work with those leaders.
#5 – Look for opportunities to capitalize expenses
If you have expenses that can depreciated over several years, capitalizing them enables you spread that cost over three or more years. In the era of licensed software and hardware, capitalizing expenses was a great opportunity to lower the budget hit over those years. Subscription tech and services have made this budgeting strategy less important. However, you still may have expenses that can be capitalized, such as exhibit booths or custom software development expenses.
If you find these fundamentals helpful, check our discussion of this topic on the podcast, The 5 Tips for Budget Season.
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