When the markets are chaotic and constantly in flux, it’s smart to save money and not spend. Unless you’re a marketer and part of your job is to spend money. What should we do?
Marketers need to create a budget framework that reins in the chaos. As our budgets shrink, the need to make every dollar count grows more acute. Marketing is still held to the mandate of improving company growth, so it’s critical that we have a robust investment plan in place.
Where should you begin?
Define a Structure and Align Behind It
65% of marketers don’t have confidence in their ability to measure the impact of their investments. Before you throw good money after bad, step back and assess all the moving pieces in your budget.
It’s surprisingly common for marketers to operate in silos, with each team using separate processes (or none!) to manage their marketing spend. Chaos results when there’s a lack of consistency among all these budgets, and Allocadia’s goal is to help you eliminate the stress and confusion caused by inconsistencies. The best way to gain control is to bring your budgets together with an agreed upon hierarchy or structure.
There are five main structures for your marketing budget:
Let the hierarchy of your marketing organization dictate your budget hierarchy. Think about how teams are organized and how they align around investments. Then structure the budget as naturally as you can, based on how funds are allocated. This creates an intuitive structure, for a better marketer experience.
Communicate Your Budget Structure to Finance
Finance and Marketing must work together as partners if they want to drive growth for the organization. Marketers rely on their finance counterparts to ensure investment data is accurate and trusted by the executive team.
With that said, unless your team is forced to, we don’t recommend adopting a finance-centric structure for your marketing budgets. There are two big differences in the way these departments organize and think about spending.
Marketers look at spend according to what they’re trying to achieve, whereas Finance sees things in terms of general ledger accounts or cost centers. Their accounting codes are generally too broad to adequately capture marketing activities.
Marketing is focused on future results and impact, whereas Finance focuses on cash flow – a more immediate consideration.
For example, Finance sees a $1 million invoice from an advertising agency and thinks, “wow, that’s a lot for one agency.” In contrast, marketers know it’s a prepayment for an entire campaign’s worth of advertising spend, spread strategically across a variety of different channels and regions. Finance has one general ledger account for advertising, but Marketing allocates the $1 million across a number of line items in their budget — or even across multiple budgets.
Marketing organizations that make an effort to include their finance counterparts are able to have better conversations about investments and business impact. At Skillsoft, the finance department now views marketing spend according to how marketing actually plans and allocates budget. The forecast plans for marketing and finance are now aligned at every meeting.
Read the full Skillsoft case study, and learn how they pivoted from an in-person conference to a virtual experience without missing a beat.
Flesh out an Investment Plan
Up until March, budgeting cycles for most marketing organizations reset at the beginning of a fiscal year, and marketers typically planned by iterating on last year. In today’s world, reusing last year’s budget is no longer possible. And the same will be said next year. It’s best to start fresh based on your team’s new strategy. Otherwise you’re building your marketing budget on cracked foundations.
Marketing organizations should take this as an opportunity to fix a broken process. If you just rinse and repeat year after year, your budget suffers. McKinsey found marketing organization’s that recycled plans were often allocated similar budgets year to year. In other words, there was no room to grow. So do your marketing organization a favour and adopt a better method for investment planning.
The first activities that go into your budget should be previous commitments such as subscriptions, retainers, and pre-paid vendor agreements. Failing to include them in the budget will create confusion in a best case scenario, and an overcommitted budget in a worst case scenario.
Start building your investment plan by listing all the activities that your marketing team wants to execute and their estimated costs. Next, organize your potential activities into relevant groupings and populate your budget based on what fits into spend targets. For each line item, note all the information required for reporting purposes such as vendor, target audience, product line, region, CRM campaign, etc.
Before sending your budget off for approval, double-check that your proposed activities align with targets. When marketing leadership assesses your budget they’re looking for two things:
- Compliance: Did all the teams plan the way they should have? Do their budgets align with their investment targets?
- Performance: Do the planned investments adequately support overall corporate objectives/goals?
Creating a marketing budget framework is the first step to gaining control over your investments. Once you have a framework in place, you can start to build an agile marketing budget that supports all the plan pivots and new scenarios this economic crisis throws your way.
This post contains just a fraction of the advice from our new eBook, Budgeting in a Crisis: How to Steer Your Ship Through the Storm. Get the rest of the insights, including how to decide between investments during an economic crisis now!