Key Aspects in Defining The Annual Marketing Budget
When a company decides to establish budgets dedicated to marketing, it is never in vain. Normally, the figure of the CMO is responsible for establishing a marketing plan involving different actions, in-company and with third parties as well, expecting an optimal return on investment.
But many times this might get complicated. For example, when analyzing beforehand if everything in which we invest will generate positive results for our company or not.
When drawing a marketing budget, the CMO should ask himself the following questions: “Do I normally optimize my investments?” and “Do I use reliable data when investing in marketing actions?”
This article is aimed at any CMO that wants to know the current trends and receive some advice to improve processes and be more efficient.
But first of all, let’s focus on three questions:
- When it comes to meeting business objectives, what impact will the economic and financial environment have in the next 18-24 months on your company?
- How has the investment in marketing agency services changed in the last three years?
- What is the support of marketing in your business?
When it comes to meeting business objectives, what impact will the economic and financial environment have in the next 18-24 months on your company?
While the vast majority of CMOs globally remain positive about the growth of marketing budgets, the trend since 2014 has been declining.
With this data, CMOs should consider on what are they going to invest the marketing budget in. That is, in what type of long-term key actions they will invest that will aid their marketing plan, always basing it on data, of course.
On the other hand, they must be aware of the oscillation of markets and governments and, in general, of the socio-economic environment in which we move daily. It is necessary to prepare contingency plans in the event that the future is dark and there is a budget cut. This can negatively affect the actions in marketing, both in the short and long term.
Every CMO should take into account all of the above, since economists have been announcing a global economic recession for some time, which will occur sooner or later, and that will affect all countries to a greater or lesser extent.
Even so, almost two thirds (61%) of CMOs expect budgets to increase in 2020. Yes, this is how they continue to be optimistic in this troubled world. According to indicators, when analyzing and measuring the economic and business ecosystem including average consumer spending, the performance of last year’s marketing actions or the budgetary strategy that the company follows, they show the opposite of what economists dictate.
Who will win the economic battle? The CMOs or the economists? Nobody knows, but if the CMO really wants to be sure of what is happening in its environment and have a clear vision of the current economic and business climate, he should pay close attention to the indicators and base his decisions on reliable sources of information, internal or external. Only if one relies on data, can give reliable answers to future events.
How has the investment in marketing agency services changed in the last three years?
In recent years, investments in the main resources of CMOs, such as agencies, martech resources, media, and human capital have evolved, changing the rules of the game. Currently, the trend tells us that more budget is usually invested in internally managed marketing actions than in outsourcing of external services.
Even so, CMOs should continue to invest in their marketing agencies, but optimize the budget invested in them. Likewise, a detail that can alter the equation of investment in external contracting, is the internal hiring of general specialists in martech, with a transversal experience that manages to meet changing demands and, in turn, support strategically important integrations.
Another important fact to consider is the expense in Paid Media, which currently reaches 26% of the marketing budget.
Of all this expense in means of payment in digital, offline, television, or search, highlights the investment in digital, which takes the highest percentage of the budget. When we talk about this investment in digital, we discover that Gartner’s 2019 studies tell us that the greatest expense is taken by the company with 23.7% of the budget, followed by a display with 20.0% and video with 19.6%.*
Of course, CMOs continue to rely on the off, such as OOH, radio or print ads, but studies tell us that if at some time difficult economic times came, the investment of the marketing departments would be destined greatly part to on before off.
On the other hand, it is interesting to analyze the general trend of the CMO’s investment: from the web, mobile marketing or digital advertising, dropping some money in off shares that do not represent more than 21% of the budget.
The most advisable thing is that the CMO create budgetary scenarios in all media channels to be prepared when determining an annual budget and that it be supported to do so both in its internal team and in the external team. Instead of making assumptions about the effectiveness of the channels in which you want to invest, we should make investments based on our objectives and our knowledge of the audience.
- Gartner, 2019.
What is the support of marketing in your business?
Market research and competitive insights, together with marketing analysis, continue to be the most strategically important sources on which a CMO is supported, while marketing operations continue to become more important in a strategic level.
Even with all this, many times the CMO is wrong. To avoid this, analytical activities should be prioritized according to the value they bring to the company and the amount of effort required to carry them out. On the other hand, it would be appropriate to establish a figure that is responsible for the management of marketing operations, a figure that makes the processes operational in planning and execution.
We must also attend to who are our biggest supporters and our detractors when it comes to helping us approve a budget dedicated to marketing.
If in 2017 IT organizations were cited as the biggest detractors, they are currently one of the biggest marketing supporters. In the TOP 3 marketing support IT would be followed by the sales and business development department and finally the CX (Customer Experience) leaders.
Instead, in the position of the detractors we would first find the financial organizations, followed by the legal organizations and the company’s supply chain team.
And although we cannot change the reality, the CMO can “sweeten” any process by following a series of guidelines such as, for example, building trust within the financial organization by collaborating its team with the financial team to improve plans and budget dedicated to marketing. On the other hand, you can always instill the best practices to your team, ensuring that everyone agrees and is aware of strategic marketing priorities and budget allocations.
When designing a budget and defining strategic actions, it is important that the CMO is set in metrics that measure both its brand, its performance, the conversion rate and the measures of loyalty and satisfaction. The data taken from these metrics are great indicators that can tell us whether or not we should invest in one or another action.
It is important that in order to measure all this we have our “scorecard” that captures both short-term and long-term income measures, and of course, that with the information collected we improve processes, support learning and innovate.
In addition, it is appropriate for a CMO to set expectations on what it can reasonably measure with ROI calculations. Does the measurement provide a granular view, centered on a handful of known data points that reflect cost and value or is it more a holistic view of the overall scope of marketing value?
Undoubtedly, there are many issues to attend to in order to become efficient professionals that generate a better work thanks to the data. But let’s not forget that leading CMOs look beyond revenue, conversion, and awareness to define marketing success.