Budget growth stalls and marketers are on the hook to demonstrate ROI.
Note: This is part one of a two-part series exploring key findings and insights from the 2017-2018 Gartner CMO Spend Survey. Read part two.
Across the many key findings from this year’s Gartner CMO Spend Survey, it’s clear that for CMOs and marketing leaders, it’s show time.
It’s time to show marketing’s financial management credentials.
It’s time to show that marketing can deal with financial constraints
It’s time to assume accountability for business performance and show that marketing can grow the business while making hard choices.
After three consecutive years of increases, marketing budget growth stalled in 2017-2018. Budgets slipped from a peak of 12.1% of company revenue in 2016 to 11.3% in 2017, according to the Gartner CMO Spend Survey 2017-2018. Marketing leaders must now justify past budget commitments and show the returns they deliver to ensure the future fiscal health of marketing.
“As CMOs survey the landscape, one thing is clear — previous budget increases have come with weighty expectations, some of which have yet to be met,” says Ewan McIntyre, research director, Gartner for Marketers.
Marketing budgets start to recede
Marketing budgets fell from their peak by 6% to 2015 levels. 2017 has been a year of significant upheaval, in terms of both global politics and natural disasters, and marketing is not immune to the business impact that flows from these macro-environmental incidents. There is also evidence that CMOs are either being too nearsighted to be strategic or too visionary to deliver against marketing’s objectives, which results in a lack of focus on the metrics that really matter to CMOs and the business.
Recommendation: Prepare for budget cuts by building a proactive cost optimization strategy that addresses all areas of marketing spend within your purview.
Half of CMOs lack financial planning muscle
Nearly half (47%) of CMOs still depend on basic budgeting methods that roll last year’s budget into the next financial period or incrementally apply a percentage increase or decrease to last year’s budget. Budgeting immaturity presents significant risks to CMOs.
Budgeting methods that lean heavily on historical data rely on the assumption that the logic that drove those decisions was and will remain sound. When this logic fails, as it often does, CMOs are left overinvesting in areas that don’t yield measurable returns.
Recommendation: Build your budgeting maturity. Work with peers in finance to pilot zero-based budgeting (ZBB).
CMOs playing it safe; budgets focused on existing customers
CMOs are spending on customer retention over customer acquisition by a ratio of 2 to 1. A focus on retention should be driven by a goal to build long-term, profitable relationships with the right customers. This ratio can only be justified if it reflects the profitability existing customers bring to the business and their alignment with long-term strategy.
Recommendation: Focus segmentation efforts on understanding customer value, using measures that capture lifetime value, profitability and average order value.
Marketing analytics gets the greatest share of budget at 9.2%
Of 13 marketing capabilities, CMOs allocate 9.2% of their total marketing expense budget on marketing analytics — the most of any capability. For 2017-18, marketing analytics jumps ahead to the No. 1 area of spending compared with 2016-17, when it came in at No. 4 behind website, digital commerce and digital advertising. This significant budgetary commitment is grounded in CMOs’ understanding that analytics is central to delivering customer experience, identifying, understanding and growing customers, and measuring and optimizing marketing performance.
Recommendation: Appoint a marketing analytics leader within your team with the seniority and experience to maximize your analytics investment, and empower your analytics leader to think beyond the analytics marketing technology roadmap.
“Prepare for budget cuts by building a proactive cost optimization strategy that plans for near-term variable cost trimmings and long-term structural efficiencies,” says McIntyre.
Gartner for Marketers clients can read more in CMO Spend Survey 2017-2018: Budgets Recede Amid Demand for Results by Ewan McIntyre
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