The Perils of Managing a Marketing Budget
During my recent travels, I met up with a CMO of a large company. We were commiserating about how non-marketing executives immediately dive down to the tactical level when inquiring about marketing spend and effectiveness. They usually say things like “how much do we spend on events?” or “we should be spending more on whitepaper” or “Are we spending enough on advertising”. We both agreed that marketing executives need to not only be more transparent about how we’re investing the marketing budget but change the level of discussion.
She asked me how I go about doing this, especially in large organizations that have a relatively complex operating model. After all, slicing-up a marketing budget isn’t as easy as it sounds. Sure, you can quickly determine your people vs. program split (personally, I like to aim for at least a 35/65 split). However, once you get into allocating the program spend, it is easy to fall into a state of entropy. Here’s why:
1. First, you have to take into account all the different customer segments you serve and the channels necessary to reach them? How much investment will you put towards your major accounts (serviced directly) versus smaller customers (serviced directly or via channels) or other partners (such as OEMs)?
2. Next, how will you balance your investment across the different regions in which your company competes? What is the relative revenue and profitability opportunity in each? How will you balance spend against “whitespace” (i.e, opportunities to expand your presence in existing accounts) versus “greenfield” (new logos/accounts)?
3. Then, there is the balance of marketing spend across different product lines? There are legacy products, new products, high margin products, high volume products… the list goes on. Not every product line requires the same level of investment or focus.
So, you think we’re done? Hardly….
4. We also need to consider how we’re balancing and trading off awareness/branding/thought leadership investment versus demand generation, lead generation and sales enablement.
5. Finally, investment needs to be examined across the marketing mix? Are we over-spending on physical events? Are we spending enough on digital marketing, including our website, search engine optimization (SEO), pay-per-click (PPC) advertising and digital nurture and customer acquisition campaigns? Perhaps we’re over-spending on 3rd party firms and should bring certain marketing capabilities in-house (or the reverse, should be outsourcing certain functions)? Are we spending the right amount on content development and ensuring our content properly covers the buyer-journey from beginning to end.
Even with the largest marketing budgets, taking all of these factors into account can quickly result in such a fragmented budget that tracking the spend and measuring the effectiveness becomes impossible. So, here are some thoughts on how to approach this:
Top Priority. The first place to start is to make sure the marketing spend is allocating against the best growth opportunities. This means working with the executive management team and investors to ensure you understand what are the corporate priorities and what corporate-wide initiatives are being put in place to achieve them. Remember, there are likely to be multiple initiatives and they are not all created equal; that is, they don’t all have the same strategic impact on the company’s performance including revenue, profitability, customer satisfaction, market share, etc.
Second Priority. In theory, the previous step should automatically align your marketing spend with Sales’ strategy, including channels, sales regions, customer segments, etc. The reality is the first step is often a bit too high-level to stop there and another drill-down is required, this time with Sales. It is critical to make sure expectations are aligned in terms of:
o Spend in Region A vs. Region B
o Spend on existing customers vs. new customer acquisition
o Spend supporting field, inside, channel and partner sales teams
Third Priority. Once step 1 and 2 are complete, then you can balance the tactical elements to achieve the marketing effectiveness, leverage and scale required.
A famous executive once told me that Marketing Executives have the hardest job. His logic was “No CFO is ever going to say they can run Engineering, and no Sales Leader is going to say they can be the CFO. But everyone thinks they can run Marketing!”. It’s true, our job isn’t easy and the multitude of dimensions in which the marketing budget can be allocated makes for lots of decisions and discussions. Taking a strategic, structured and transparent approach will make it easier to achieve alignment on the marketing spend as well as keep discussions at the strategic level versus having every tactical element examined and questioned.