As a marketing director with decades of experience, Laura knew how to efficiently build her budget: Ratchet up last year’s line items to account for this year’s strategic growth goals. Her new goal to grow share of voice might mean adding 10% to last year’s digital display line item. Although her approach had worked in the past, this year seemed different.
Despite three consecutive years of marketing budget increases, 43% of marketing leaders in 2016 expected their budgets to fall or flatline. At the same time, marketing’s mandate and accountability are growing significantly. Technology, innovation, customer experience and digital commerce now live alongside traditional areas of marketing responsibility. As a result, marketing leaders need to develop high-yield budgets and optimize costs to deliver clear benefits to the business.
How should Laura budget for changes to the company’s agency roster based on their needs for new expertise? Should she continue to pay for the three marketing analytics tools she knows the company uses across divisions? Do they really need all three? She could easily cut campaign and media spend, but how could she tackle the significant fixed costs of marketing operations? Most importantly, how does Laura ensure that her budget reflects critical future growth activities and not just past assumptions?
The Gartner CMO Strategy Survey, CMO Spend Survey and Marketing Technology Survey conducted during 2016-2017 explored the impact of budget cuts or constraints on marketing programs. Analysis of survey results uncovered three recommendations to ensure marketing leaders get the most from their marketing investments and budgeting:
Use zero-based budgeting to ensure value alignment
Budget pressures aren’t destined to result in reduced marketing performance. Adopt a zero-based budgeting (ZBB) approach to build high-performing marketing budgets. ZBB means building a budget from the ground up annually, with each line item based on a business case for delivery of future value, not a markup of the past year’s line items.
Unilever and Diageo adopted ZBB methods to build accountability and foster a data-driven approach to marketing investment. Unilever reported that ZBB is expected to help contribute approximately $1.1 billion in savings by 2018.
Balance in-house capabilities with agency support
Gartner’s 2017 Marketing Strategy Survey found a misalignment between the services that agencies want to sell to clients and the services that clients want to consume. Marketing leaders indicated a shift toward a model that builds strategies using in-house talent and expertise. They rely on agencies and third parties to either fill resource gaps (the desired state of 29% of marketers) or for basic program execution (the preferred state for 31% of marketers).
Cost-effective operations require marketing leaders to find the right balance between in-house capabilities and agency resources (to benefit from external scale and expertise) and the category and industry know-how from internal resources. Audit your agency roster over the longer term and map each agency’s unique skills against your strategic priorities. Consider a mix of agencies, from global players to niche providers, and focus on quality of output and deliverables and cost-effectiveness over agency brand name.
Optimize marketing technology investments
Marketing technology now accounts for 27% of the marketing budget. According to Gartner’s Marketing Technology Survey 2016, marketing organizations have an average of two digital marketing analytics systems, making digital marketing analytics the highest reported redundancy out of 29 categories surveyed. Redundancy and abandonment now must be a part of the conversation when it comes to technology planning.
Establish governance around managing marketing technology investments, and spend the time upfront to specifically define what the potential solution will deliver to the organization. Also assess how it will integrate with the rest of the technology in your organization and how prospective solutions can grow with changing customer and organizational needs.
“Effective marketing cost optimization requires a robust, data-driven appraisal of marketing’s programs, shining a light on the investments that deliver value to the business and cutting away long-cherished programs if they don’t deliver against objectives and business goals,” McIntyre says.