One Marketing Budget Best Practice Stands Above all Others
- For some, the marketing budget is a cost allocation schedule. For others, it's a predictive investment to generate a net positive revenue return to the company. For all, it is the clearest expression of marketing strategy.
- When marketing delivers an impressive Return on Marketing Investment (ROMI), the annual budget is increased. However, when marketing is measured by their spend, and not directly linked to revenue contribution, the budget is at risk.
- The single best marketing budget best practice to demonstrate ROMI and clear revenue contribution is to shift proposed spend from a static document to an interactive model.
Make the Marketing Budget an Interactive Investment Model
Research published in the Marketing Transformation Report found that 44 percent of marketing departments create annual budgets but do not forecast a revenue amount to be achieved from the total investment.
The research also found that of the remaining 56 percent that do forecast revenue to be achieved, only one-third of that group delivers reporting that shows their revenue progress and achievement. For the rest, the financial projection is more of a one-time exercise to justify the annual marketing spend and not thereafter measured.
If your marketing budget doesn't forecast earned revenue delivered to the company, it's a cost schedule and marketing is a cost center. That's a dangerous place to be.
It suggests that marketing's job is to spend money. That makes it somebody else's job to save company money by reducing the marketing budget.
A Marketing Budget Best Practice
I've written about marketing budget best practices previously so don't want to repeat those here. However, one best practice stands far and above all others and is worth a deeper dive. That best practice is to shift planned investments from a static budget to an interactive budgeting model. Below are some pointers and lessons to assist.
- The goal of the marketing budget is to find the least investment to achieve a target revenue amount. That means the Chief Marketing Officer (CMO) or other marketing leader must start with the revenue goal and work backwards. This is opposite the more popular bottom up approach that simply attempts to justify investments without a predictable return.
- The marketing budget should be a dynamic and interactive model. It should show how any change in investment allocation impacts the revenue contribution to the company. Every CMO should be able to answer the question, "If the marketing budget is reduced by 5 percent, what's the impact to the company's revenues?" Knowing the answer to this question will preserve the budget during tough times or cost cutting periods.
- When building that interactive model, the financial levers must focus on marketing strategies that directly correlate to revenue impact. The strategies include things like brand development and lead generation. The best budgets are built on performance metrics that show precisely how campaigns, programs and tactics deliver results that drive the marketing strategies and roll up to achieve the company's revenue goal.
- You need a closed loop reporting system and historical data to operate an interactive model and project future results with confidence. You need to know the cost per lead for each type of campaign, the sales funnel conversions and velocity for each type of lead, and the cost per customer acquisition for each type of customer. If you don't have the data, you can refer to industry benchmarks. However, in helping clients build these models, I find that most clients do have much of the data, it's just residing in many places and has to be organized.
- Once you have an interactive investment model, you can experiment, test hypothesis, perform What-If analysis, run different scenarios, and compare alternatives. You can see the cascading effect of how a change in a campaign impacts everything else. This is the activity that creates learning and identifies faster or cheaper programs that achieve better results.
- This type of real-time analysis with predictive results is invaluable for planning investments. It can also be used to optimize in-flight campaigns or implement swift course corrections. When implemented as part of a marketing engine, campaigns can be dynamically altered automatically.
- The interactive model can test theories with not just individual campaigns but broader campaign portfolios. This will show otherwise difficult to recognize relationships and further identify opportunities for higher conversions, faster cycle times and lower costs. Even better, you can identify the common factors that impact multiple campaigns and most reduce cycle times. Or you can surface the types of leads that enter further down the funnel and close in shorter periods. This type of campaign portfolio analysis is especially helpful with omni-channel nurture campaigns, which we all know deliver some of the best results.
- An interactive budget permits not just focus but refocus when business priorities change. For example, if the economy loses steam and management wants to double down on growing existing customers or retaining customers, an interactive model can be rerun in real-time.
Only when marketing's revenue contribution is predictably forecasted, objectively measured, dynamically updated and clearly understood will marketers get a seat at executive table.