For most marketers budgeting season starts in September or October. Budgeting often stretches into early February as feedback from finance and shifts in other department’s budgets have ripple effects to the broader organization, making now the right time to revisit some key tenets of managing your marketing budget.
Gartner’s CMO Survey shows that budgets are trending up for the third year running – averaging 12% of total revenue. At the same time, we saw an increase in the percent of marketing leaders who are expecting belt tightening next year (see “CMO Spend Survey 2016-2017”, subscription required). With that in mind, we are featuring budgeting research wanted to remind you that many of the core tenets of good fiscal hygiene are practices you probably learned in college.
- ZBB is a Smart Way to Start. As a freshman in college your budget is a blank slate. You build up to the number you need from your parents and/or financial aid by determining what you need, estimating costs and perhaps adding a tiny bit of padding for improper estimates. The same is true for modern marketers. Faced with increasing pressure to tie spend to results, marketers should not assume that what they got last year is the starting point. Were all of last years’ efforts a success? Are there things you can do without this year and/or is there a strategic imperative that changes how you need to think about categories of budgeting this year? Zero based budgeting (ZBB) is a practice (and cultural mindset) that starts bottom up to build a smart, targeted budget tied to specific outcomes. Working with your team, define the goals your organization has to meet and budget from the ground up to get a comprehensive understanding of what you really need to spend.
- Justify Spend by Aligning to Leadership Priorities. As a student, if you were fortunate enough to have parents helping you financially, getting a bump generally meant proving that it would contribute to the education that would make you a contributing member of society (e.g. getting off your parent’s payroll). For example, getting more money for your meal plan mapped to less time and effort spent on food, freeing up more study time. Marketing leaders today recognize that for any plan and budget to get approval, it needs to ladder up to corporate goals and objectives. Seeking funding for projects that don’t have clear alignment to C-Suite priorities is a sure fire way to see a reduction in budget and possibly responsibility. When your team does that ZBB budgeting, ensure that each activity, program and contract they plan to spend on has measurable outcomes that tie back to your corporate objectives. That means you as a leader need to do a good job of translating top tier objectives into your marketing vision and directives.
- Have a Backup Plan for Unexpected Cuts. A colleague of mine, lived largely off of potatoes and rice during his second year at university due to unforeseen budget issues and I definitely had weeks where ramen and bagels dominated my diet. Having a contingency plan that allows you to get by – perhaps unglamorously – is crucial to any budget. Marketing leaders should ensure spend has been prioritized so that if (or when) a cut or delay occurs it doesn’t take much time to pivot, stopping or pausing activities and outlays that have the lowest negative impact to critical outcomes. Your team should understand which items are critical to run the business versus those that are perhaps a bit more speculative or long-range and have flexibility to flex with agility. This type of scenario planning will enable you to weather cuts with the most grace possible (see “Use Cost Optimization Techniques to Manage Marketing Budget Constraints”, subscription required).
- Spend the Rare Windfall Wisely. We’ve all found a $20 in a pocket and cheered. In my case, it didn’t take more than a few of those spent on something silly before I realized that the I should have put it toward something more strategic like my spring break fund or a new laptop. The $20 found spent frivolously rarely felt satisfying, while identifying something that would pay back in utility or long term memories was great. For marketers that means having ‘what if’ plans. The programs that didn’t quite make the ZBB cut, but could be impactful and can be pulled off with minimal lead time should form a ‘windfall ideas’ list. At the end of each quarter or year when funds often get shaken loose from underutilized programs, consult this list to determine what, if anything, can be executed to drive top business priorities. In some cases, you should be evaluating more frequently (consider it proactively going through all your jean pockets) to find places where budget may be lurking underutilized when in fact it could be driving results right now.
- Have a Contingency (Testing) Budget. Just as you sometimes found money, most college kids learned to stash funds for a rainy day – whether that was for a real emergency or for that once in a lifetime concert ticket. The same is true for marketers – however, in our roles, that money should be earmarked for testing initiatives as part of an agile, iterative cadence. Marketing leaders surveyed in our annual CMO Spend survey say they set aside 10% of the marketing budget, on average, for innovation.
- Make it Your Business to Know the Best Deals. I’ll admit to knowing when there was a great sale and who had which happy hour on which day. It was in our best interest to know which businesses benefited from college patronage during otherwise slow times. Many of the same tenets hold true as you think about investments, partnerships and negotiations. Your marketing requires quality tools and services, but as with everything else, there is a value equation that is appropriate to each situation. If your need is urgent and critical, it may not be the right time to negotiate. If, however, you have the flexibility to time your purchases to coincide with opportune vendor cycles or consolidate solutions with a partner that wants to earn more of your business, you may find yourself with great leverage. There are ways to extend that same ‘happy hour’ thinking to marketing. Not long ago, a team I led at a high tech company became a Tier 1 buyer of media from a particular, highly targeted outlet. As their prices rose, we decided to cut back some of that spend. Upon discussing our needs and priorities, we learned that we could partner more closely to become a preferred buyer of remnant inventory – at a much lower price. One member of my team made it our business to pre-buy the minimum we required to meet about 60% of our goals. She then stayed in lock step with this partner – even arranging streamlined IO and purchasing processes – to augment our inventory at not-to-be-beaten prices, resulting in the best media efficiency for high converting programs we’d ever seen. Without learning about our vendor’s patterns and finding a mutually beneficial deal, that wouldn’t have happened.
Whether your budget is growing or shrinking this year, these common sense practices that you probably learned well before you became a professional marketer can help you make smart strategic budgeting decisions in 2017 and beyond. Which of these do you already practice? Which were reminders of things you knew you should be doing? Got any other tips you’d like to share – I’d love to hear them in the comments.