2018 may introduce a climate of receding marketing budgets, according to the most recent Gartner 2017-2018 CMO Spend Survey. The survey shows that marketing budget levels, which are typically allocated a year in advance, declined for 2017-2018, reversing three consecutive years of increasing budgets. Some experts say that this decline is the result of marketing’s inability to prove its contribution by showing how its activities create business results that matter to the C-suite.
Laura Patterson, President and Founder of VisionEdge Marketing, a marketing performance management consulting firm, said declining marketing budgets are related to marketing’s inability to connect its work to how it delivers value to the business and customers. “We’ve found that for the c-suite, it is less about the budget and more about the plan marketing develops and executes to accelerate growth, create customer value and improve business performance.” Patterson cites data from her own benchmark study that reveals almost 40% of marketing organizations earn low marks from the C-Suite for performance management and measurement.
The budget, however, is just one side of the coin: the other side is the plan. “There’s a big difference between a budget and a plan,” said Darin Hicks, CEO of Hive9, a marketing performance management solution provider. “We think about a budget as a spending limit across high level – typically financial – categories. A good plan is a set of activities designed to achieve a business result. We have many budgets out there without a plan at all. And we have a situation where the plans have a varying degree of credibility or historical success to them. So, the top-level idea here is, how do marketers more credibly defend the budgets they’re asking for? And how do we really have a better link between what marketing’s doing and the performance metrics that drive revenue?”
Too many marketers use a budgeting approach that is flawed at the outset, causing their credibility to suffer, according to Sam Melnick, VP of Marketing at Allocadia, a provider of marketing planning, budgeting and performance software.
“Marketers are using legacy tools and processes – spreadsheets and PowerPoint – and these inefficient processes waste time and resources in a few ways,” said Melnick. “They’re deposited onto a shared drive never to be seen again until next planning season, and the spreadsheet turns into a behemoth, especially with global teams, and a version control nightmare. They don’t give any insight into how plans are executed, whether dollars spent are aligned to plan, or more importantly, aligned to corporate strategy.” Allocadia research supports Melnick’s assertions, finding that 82% of marketing departments use Excel for critical business functions including planning, investment management, and measurements.
Melnick shared the following recommendations into how marketers should tackle budget planning in 2018, and evaluating tools and tactics to support the process:
- Align and balance the budgeting process. Strike a balance between budgeting top-down – aligning plans at the corporate/strategic level – with budgeting bottom-up to guide actual execution. Melnick recommends a hybrid approach that sets top-down targets, then builds a bottom-up activity plan. This gives marketers budget plan autonomy while staying true to the leadership priorities.
- Leave room for experimentation. The most successful companies allocate at least 20 percent of the budget to trying new things.
- Spread extra budget money thoughtfully. If marketing gets extra funds, don’t simply spread them equally across business units, activities, or campaigns. Invest them where they best support the business and have the highest growth potential.
Melnick emphasizes the process needs to “put metrics to work for you and not the other way around,” citing Allocadia client Red Hat as an example. Red Hat has adopted the marketing performance management technology and approach, providing it with a very clean set of marketing investment data that enables it to consider strategic questions such as:
- What is an acceptable customer acquisition cost?
- Which tactics outperform others in creating new revenue?
- How can Red Hat optimize its highest performing assets?
- How will a campaign investment generate pipeline revenue?
“The big metric for Red Hat is they have been able to get to within .01% of their finance budget target,” Melnick shared, adding that one benefit of this is finance gaining confidence in marketing.
With reduced budgets the reality for more marketing organizations in 2018, industry analysts suggest they should embrace a data-driven cycle of planning, budgeting, executing, measuring, refining and reporting, supported by technology. “This is the approach that is necessary to prove marketing’s contribution and shape the perception of marketing as a value-center, not an expense,” stated Patterson.
But, “it’s easier to say than to do,” said Hive9’s Hicks. He shares four things marketers should do to own the budget and planning process, rather than have the process own them:
- Understand your historical performance: Know at a high-level what has worked and not worked.
- Plan with the notion of time: Know what marketing can really impact and when. For example, if an organization has a six-month sales cycle, driving new leads in the second half of the year won’t contribute current-year revenue.
- Highlight the trends: Know how things trend over time. If something’s been declining the past two years, and a lot of budget is going toward it, it’s probably not where marketing should place its bets for next year.
- Look forward, not just backward: Know how everything is supposed to happen through the year, such as when leads will come as a result of marketing activities. Model a forward-looking view that predicts revenue. Doing so will build more credibility with the CFO.
Hive 9 client MongoDB bought into this process that Hicks describes when the company needed to better understand how leads moved through the sales pipeline and use that data to identify activities that were effective, and those that weren’t. The process MongoDB implemented gave it greater visibility into the pipeline, allowing MongoDB’s marketing team to gain insight into which activities were producing results so it could reallocate its marketing budget toward those activities.
As marketers enter 2018 with the perennial expectation of doing more with less, Hicks cautions that just automating the existing process doesn’t necessarily solve the budget problem that many marketers will have. “Don’t just do what you’ve been doing faster. Take a step back and do it in a more thoughtful or data-driven manner.” Marketers must also never lose sight of their primary job: “Find customers, keep them, and grow their value,” said Patterson. “Marketers should think of themselves as chief value officers, thinking less about what they can do from a programmatic perspective, and look instead at proving marketing’s value by driving those things that matter to the business’s success.”
