Welcome! This post is part one of a three-part series on building and managing a marketing budget.
- Part 1: Best Practices for Organizing Your Marketing Budget [below]
- Part 2: Best Practices for Building Out a Marketing Budget
- Part 3: Best Practices for Managing Your Marketing Budget
Nearly every marketer on the planet — no matter the role, industry, or seniority — has to make decisions about where to invest their marketing dollars. Those investment decisions will have a huge impact on every team’s success.
We’ll provide some recommendations for the very beginning of your marketing budget’s life. That crucial time when your team is making decisions about how to organize and structure its marketing budget.
In this post, we’ll cover:
- How to choose a structure for your team’s marketing budgets
- Our recommendation for how to structure a marketing budget
- How and why marketing and finance structure budgets differently
If you’re on a marketing team with more than a few marketers, your organization almost certainly has multiple budgets according to type of spend. For enterprise organizations, the number of individual marketing budgets can easily number into the hundreds.
Organizing your Marketing Budgets
Chaos can be the result when there’s a lack of consistency among all these budgets. The best way to gain control of these is to bring them together into a hierarchy or structure. The structure you choose can have far-reaching implications. It’s not just day-to-day budget management, but also how your marketing team thinks about spending money and makes investment decisions.
Choosing a Marketing Budget Structure
When the budgeting cycle (typically a fiscal year) resets, most marketing organizations won’t start with a blank slate — they’ll simply iterate on the previous year. Still, the beginning of a new budgeting period is a golden opportunity for marketing teams to consider how their existing budget structure is working for them, and to rejig things if necessary.
Mid-year budget structure changes can be onerous, so it’s best to decide upon a structure that is likely to continue making sense for the organization throughout the year and commit to that.
Consider these common marketing budget structures:
- By Business Unit or Product Line: This top-level structure divides spend according to discrete business units. Companies operating in multiple industries will typically adopt this format (separating spend by brand) with a secondary level of classification according to region or type of marketing activity.
- By Region: Where marketing spending patterns differ drastically by region, a regional structure may be best, with sub-budgets lining up within the regions. In some companies, each region is mandated to adopt a consistent budget structure. In others, the regional marketing teams are free to organize spend how they see fit.
- By Functional Area or Campaign Framework: Some companies will structure budgets based on functional area (events, public relations, or digital, for example). Others are guided by the SiriusDecisions Campaign Framework, using the four program families: Reputation, Demand Creation, Sales Enablement, and Market Intelligence. This can be a convenient way to organize things since non-executive marketers’ roles most often align to these functional areas. This can also be the way budgets are structured within a hierarchy based on one of the above structures.
- By Allocation: This is a grab-bag of structures not mentioned above. Some businesses are better suited to a marketing budget hierarchy according to vendor, branch, or even person (in the case of a smaller organization).
- A Combination: Blends of the above are commonly seen. For example, a consumer packaged goods company may organize by product line (shaving razors), but each of those rolls up into an overall hierarchy according to (men’s grooming products). Regions that organize by function is another common example.
In this example, fictional company AceTech has used Allocadia to create a hierarchy by functional area of marketing, then by region. This blended structure is commonly seen in the tech industry.
Allocadia‘s Recommendation for how to Structure a Marketing Budget
When it comes to choosing a budget structure, have your budget hierarchy mirror the marketing organization itself. How are the teams of people organized, and how do they think about spending money?
Structure the budget as naturally as you can, based on how you’re already in the habit of allocating funds. With a structure that feels intuitive, it’ll be easier for each marketer to keep close tabs on how much they’re spending, and what results those investments are achieving.
For an in-depth guide, read our e-book Budgeting in a Crisis: How to Steer Your Ship Through the Storm.
How and why Marketing and Finance Structure Budgets Differently
Why not simply let your finance team make the decision about how to structure your marketing budget? The fact is the two departments have different ways of organizing the dollars leaving the company.
Marketers look at their spend according to what they’re trying to achieve with those dollars, whereas the finance department sees things in terms of general ledger (GL) accounts or cost centers. As well, marketers are more focused on their future results and impact, whereas finance focuses on cash flow (a more immediate consideration).
To illustrate, we’ll call upon our recent conversation with someone who understands this issue better than most: Carey Rutigliano, Director of Financial Planning & Analysis for Cloudera. He’s a rare breed: a professional with a finance background who is a business partner to the company’s marketing team.
Here’s an excerpt from a webinar we did with Carey on the topic of breaking down walls between marketing and finance:
Take the example of a $250k invoice from an advertising agency. Finance folks look at it and think, “wow, that’s a lot to pay one agency.” In contrast, marketers know that it’s a prepayment for an entire year’s worth of advertising spend, spread strategically across a variety of different campaigns and regions. Finance might have one GL account for advertising, but Marketing will allocate the $250k across a number of line items in their budget — or even across multiple budgets.
Unless your team is forced to, we don’t recommend adopting a finance-centric structure for your marketing budgets. Check out these additional resources on the relationship between marketing and finance.
Your first job is moving from chaos to order. It’s surprisingly common for marketers to operate in silos, with each group or team having separate processes (or lack thereof) for managing their marketing spend. If you’re a marketer looking to bring some structure and consistency to your organization’s marketing budget process, you’re already ahead of the curve.
Organizing your marketing budgets into a structure is the first step towards reducing budget chaos and getting clearer visibility into knowing where and how much you’ve invested, and what results you’ve achieved.
For more content on managing your marketing budget check out Everything Marketers Need to Know about Their Budget.