Marketing Leaders: Six Tips for Effective Annual Budgeting
As most marketing leaders are in the throes of 2018 budgeting I thought I would share my perspective as I have been there through the good and the bad. Yes, I have experienced the cavalier call from my finance team that the financial budget lock dates moved and they had to drop in a number for marketing. Conversely, I have experienced a solid collaboration with the financial planning team in which there was a logical give and take process. Now, I am not going to suggest that either of these approaches got me the full budget I felt was warranted but, the latter process at least gave me the opportunity to communicate, educate and advocate for budgets based on facts. Now, this could turn into a lengthy post as the topic is rather complex therefore, I am going to focus on a short list of key considerations.
Marketing OPEX vs. Program Investment
Your marketing OPEX includes everything budgeted including- infrastructure, headcount, contractors, spend with vendors (Program Investment), etc. When thinking about your overall budget it is important to recognize how much of an internal capability you have built out as this may skew your program budget accordingly. Therefore, as you make a case for marketing investment make sure you include an assessment of any adjustments to headcount, contracting services and program spend year of year. It is especially important to analyze this over a multi-year period as it could indicate a longer-term trend that is negatively impacting your ability to compete.
Framing the Budget Based on External Data
Obtaining competitive spend data can be challenging from a pure marketing perspective as it is often bundled into SG&A and not reported in detail in SEC filings. Having said this, there are often ways of extrapolating this information from available data or third-party vendors. There are also a number of sources for industry average marketing investments as a percentage of sales. Spend as a percentage of sales in and of itself should not be the only means by which your budget is determined but, can provide a frame of reference for planning and bringing other senior management into the fold.
Bottom-Up and Top-Down Planning
The healthiest planning processes I have engaged in have had two planning vectors – Bottom-Up planning by marketing teams and Top-Down planning by senior management and finance in which there is an iterative cycle to close the budget. Bottom-Up planning involves the marketing planning team developing the best-case-scenario plan to achieve the objectives for the coming year while investing appropriately for a longer time-horizon. Top-Down planning is the building of an overall investment model based on the overall organization’s business and specifically financial objectives. In this model, senior management is making calls as to where investments will have the best return on shareholder value across a variety of functions (e.g. Finance, Engineering, Sales, Service, etc.). Therefore, it is essential in the Bottom Up plan to provide clear linkage to business objectives as well as a compelling forecast of potential return-on-investment.
The marketing budget should be a reflection the strategic priorities of the overall organization. It is important to make sure all budget owners that are developing their plan have line-of-sight and understand the business objectives for their business and region. More than this, make sure that the marketing plan incorporates a cascading connectivity between business objectives, marketing objectives, marketing strategies and marketing tactics.
Foundational Programs vs. Strategic Investments
There are marketing investments that are often considered foundational programs (e.g. Co-op, MDF, Product Launches, Nurturing Programs, Tradeshow and Events, etc.) that are budgeted for every year and assumed to be essential to a complete marketing plan. Sadly, most of these investments are not essential or could be refined/streamlined for cost efficiency. Aggressively question all assumptions relative to your foundational programs and look for operational/cost efficiencies that would allow for greater funding of strategic initiatives. Strategic investments are programs that are developed with a strong ROI model and that tie directly to positively impacting the Annual Operating Plan, as well as attainment of the three to five-year business plan objectives.
Marketing leaders need to define and manage expectations relative to the return on marketing investments. Make sure in your budgeting process that you are detailing the contribution to revenue generation that marketing is committed to deliver. If your go-to-market model involves the challenges of tracking marketing generated channel deals, manually pull and validate data to develop an algorithm to forecast this revenue generation contribution. In addition to this, you may want to consider reviewing a host of marketing planning, attribution, and management software applications to automate this process. Finally, while marketing can and does drive directly traceable revenue results I would highly recommend developing a “Marketing Influenced” target as well in the budgeting process. That is, the revenue generated from all sources with which marketing connected at some point during the course of the year. I realize that the detailed plan is not always completed by the time the budget gets set so use an approximate percentage increase YOY as it will help secure a larger budget.
Simply put, the key to success is deploying a thoughtful, fact-based process for planning, proactively engaging the finance team early and effectively communicating the value of marketing investments. I hope this has been helpful and welcome your feedback.