The dangers of misaligning your marketing budget with business goals
- 16 May, 2016 10:26
In today’s fast-paced, competitive marketing environment, mastering the marketing spend is becoming a finely tuned art.
Gartner’s CMO Spend Survey 2015-2016 revealed marketing budgets are actually increasing, with focus on social marketing, analytics, customer experience and digital commerce. But with this comes increased expectations, the report found, as marketing is expected to drive profitable growth through the acquisition, retention and expansion of the most valuable customer relationships.
The challenge for marketers now is how to effectively sync budget priorities with measurable business outcomes. We speak to marketing leaders, experts and analysts to find out why the pressure is on for CMOs to align marketing spend with business goals more than ever before.
“The biggest budgeting mistake I’ve witnessed throughout my years as a marketer is not tying budgets directly to core business outcomes,” software company Sitecore’s CMO, Scott Anderson, said.
“A business, especially in the tech industry, is a living breathing entity. It’s a dynamic environment where executives are making trade-off decisions all up and down the line."
When something causes a shift in financial planning, such as economic downturn or a shift in market dynamics, those business entities that demonstrate direct benefit to either the top-line or bottom-line have an advantage, Anderson said.
“For marketing leaders, or any functional leader for that matter, it is critical to understand the priorities of the key business stakeholders, be able to translate those into measurable results, and then to tie your budget to those results.”
Lack of alignment leads to a chase and scramble game
According to Anderson, whenever he has observed companies in a growth cycle, the processes, metrics and budget discipline are not monitored as closely as they should be. However, when that cycle turns the other way, those who have not tied resourcing directly to business outcomes are left scrambling to protect their priority programs.
“It’s the same within the function of marketing. A CMO's priorities could shift at any time, without an increase in overall marketing funding. When that is the case, the only way a CMO can increase funding in one area is to cut back in another," he says.
"Those marketers without a plan or measurable business accountability are in a position of weakness when that happens."
Bonnie Crater, CEO of marketing campaign metrics company, Full Circle Insights, agrees with Anderson's observation. She stresses that as a marketer, your budget is always closely linked to how you are operating - and that is something the CMO needs to discuss regularly with the CEO.
“If you’re over budget, it can materially affect the results of the company – and that could be problematic for business goals,” she said. “And if you’re over budget and under achieving, then you might have a serious problem and facing very significant budget cuts and layoffs.”
To combat this, Crater suggests that CMOs determine the revenue target and the sales target for that year, as well as the viable optimum conversion rate, to then make adjustments to how many leads you need to generate in order to achieve the revenue goals.
“You also need to look at what percentage of leads come from marketing as opposed to the sales team. Finally, you need to know what your average sales cycle is – because that can shift the number of leads needed to generate, based the length of the company’s sales cycle,” she said.
Running the risk of becoming a less agile marketer
Marketing automation software company Squiz’s global marketing director, Robin Marchant, believes not aligning the budget with the overall company direction and vision means trouble for marketers.
CMOs will fall into the trap of focusing on building a plan that is not going in the same direction as the company, Marchant says, as well as risk falling foul of appearing to have a lack of budget or not being as agile as they should be.
“It’s because you’re funding the wrong thing to drive the company in a slightly different direction,” he said. “That’s where I think a lot of marketers - and a lot of organisations - have that disjointed approach when it comes to marketing budget and business management,” Marchant says.
Marketers should consider what they actually want to achieve in the first place, and determine what success really looks like over the overall planning cycle – with the quarterly, yearly and the 3-5 year extended forecast and budgeting plans, he added.
“I think the key is to be agile when you look at all the planning and budgeting – especially when you look at the marketing condition now – it is very fast moving and technology is certainly impacting that approach.
“Ultimately, you need to focus on the goals of the business - what you’re trying to achieve within the marketing arena, making sure you have a flexible and agile approach and that your marketing mix remains relevant ... not a cost centre, but a results department.”
Focus on what marketing brings to the company
Sitecore’s Scott Anderson stresses that marketers should recognise the value that they deliver to a company, whether you are building a brand, driving demand, enabling the field or some other functional goal – and remember that none of these happen in isolation.
“If your goal is brand building, go find the competitive set, run a brand tracking survey and then demonstrate how you’ve moved the needle over time,” he explained. “Better yet, determine how the brand equity you are creating converts into top-line growth. “
A lot of marketers still work in a vacuum, Anderson adds. While great creative garners attention and a lot of clicks indicates momentum, neither tie resourcing to the business outcomes that matter to the executives in charge of budget allocation.
Rakuten Marketing’s managing director, Anthony Capano, agrees. He says marketing should always be viewed as a whole, and not through individual channels.
“It’s easy to fall into a trap when budgets are segmented by channels and don’t focus on the entire customer journey,” Capano says.
One of the best ways to assess marketing budgets, according to Capano, is to take a holistic view, looking at marketing channels through the impact they have on the overall consumer experience.
“Marketers need to look critically at which campaigns are actually driving traffic and impacting consumers. Using an attribution model is a great way to do this as it helps marketers get an accurate understanding of what is driving consumer engagement, converting sales, and where budget should be prioritised and shifted.
"This aids in optimising budget, and provides greater flexibility to marketers managing campaigns across multiple channels,” says Capano.
Top tips to align marketing spend with business goals
In order to better align the marketing spend with business goals, Anderson recommends the following steps:
- Interview all relevant business stakeholders
- Aggregate their asks of marketing into a consolidated set of tangible metrics
- Tie your budget to those metrics, and report back to your stakeholders at least once per quarter to demonstrate accountability.
“And when shifts and changes happen, if you are aligned with the key stakeholders and your budget ties to the outcomes you’ve agreed on with them, you can have a much better conversation about budget allocation levels,” he says.
Read more of our marketing budget series: