Let me say that again standard budget parameters don’t exist for marketing, and they should not exist, any more than they do for any other function in the organization. No one repeats the past in developing strategies and marketing plans for the future. Is it ever the case that the strategy and goals for the coming year are identical to the prior year? If they are, your company is not growing.
I belong to several strategy and marketing-as-strategy professional organizations. They have members that hold roles like Chief Strategy Officer, Chief Customer Officer, and yes, even Chief Marketing officer, as well as their Vice President variants. Like every year, this year is no different.
About this time, October, someone in a senior executive role asks the question: “…my CEO has asked me”: ‘What are the standard parameters and/or formula used to determine a marketing budget?’” My colleague shared that this question always makes her “shiver.”
The initial responses for industries X, Y, and Z, come from dozens of C-level and VP-level strategic leaders from different roles in the executive suite. CFO’s pipe in, as do Sales VP’s and others with standard percentages for developing the budget from a total dollar standard down.
If you know me, you know this is frustrating to see. Any MBA should know this is not the right way to prepare for success.
Three things converge to define your marketing-as-strategy budget. first is your marketing plan to achieve corporate objectives. Second is the spend from last year, and third is the economic conditions of spend that the CFO is going to share at budgeting time. Now, the game is on. The most important item, is the first one – precisely, what is it going to take to achieve the CEO’s corporate objectives for the coming year – in budget dollars.
Using standard budget parameters for your industry is like putting a year-long project in gear, backwards. I know, as do other leaders that know that marketing-as-strategy is the CEO’s secret weapon and right hand to achieving success in attaining every strategic goal for the company (not only revenue, but true competitive advantage across all functions). As such, this question is backwards because it is not focused on the expected result, but on building a set of activities first, to meet a budget number based on x% of operating budget, or who knows what.
I replied with this note to my colleague – see if it makes sense to you, too.
In every senior marketing role I’ve held, I have loved this question. It is the opportunity for Marketing Leaders to step up, and defend their marketing plan, base it on strategy, costs, and results. And, show that it is aligned, and is leading towards results on equal footing, or perhaps better than, any other executive’s plan for the coming year.
How many times have marketers been in the executive suite, and watched the other CxO’s present their annual plans for operations, sales, r&d, and so on…, and then see all the money go to those functions because they say they need 4%, the industry norm of operating budget like every other company in their category? If I’m the CEO, I’m saying: “4% for what?”
This is instead, marketing-as-strategy’s time to shine.
To be clear, it is not the time to say “industry standards spend… so we should too.” That’s sure suicide for your detached marketing plan. Every other leader around the table is going to say “our company is different, and I need that $ for my functional plan. Sure, have some benchmarks in the back of your mind, if asked, but never lead with this logic – it shows you don’t really know.
Instead, build your marketing plan based on the corporate goals the CEO has set out for you to visibly lead the company. Take the time to really put the MBA-rigor you know is right to build a strategy, that drives results, that support the CEO’s objectives, and will ultimately achieve them. Like positioning and differentiating any other product or service, position your strategy in your presentation to the CEO and executive suite during budget meetings.
Give them “options” for level one investment gets level one returns. Level two gets level two returns, and so on. Then, make your optimal recommendation (it might/should not, be the biggest budget level scenario) for spending across all domains of marketing (corporate, product, strategic, and field -marketing). And, don’t forget to budget for your people and team to ensure success (Human Resources).
…then defend it! If you don’t get the money you need to spend and deliver on the CEO’s objectives, position your results and set expectations in these meetings among the other executives and their budgets.
I have seen it, and experienced it, and can guarantee that a rational like: “I need 4% because that’s the industry norm” will fail nearly every time, and marketing overall, as well as your company, will suffer.
Build a plan, price it by getting several agencies and vendors to provide competitive quotes for your editorial, social, media, events, product and field (etc.) efforts across the next-year calendar. Be sure you have included input from others on the executive team so you can show and share how your marketing strategy and plan is based on their input . When they say no to something, take the proposed results off the table, and ensure that expectations are set in October so you are not the blame point for failure dependent on the marketing budget that was cut later during the budget year. Document what is in, and what is out, and memorialize it.
If you have a good CEO, she/he will see you as a partner to their success as a leader of the organization if you apply MBA-level strategic thinking to budget-setting. If you do the “everyone in like companies spends x%, so we should too,” you have abdicated your strategic leadership responsibility. The CFO and the CEO will discuss your lack of vision in private, and give you a set amount for the coming year – they may start a search for your replacement as a subsequent outcome – if they are good at their roles. As a result of abdicating leadership, you will be forced to make do while expectations will be set by everyone else telling you what you will do without consideration and understanding of what effort it will really take (human resources) and what budget it will really cost. This is a recipe for failure and career disaster for marketing, and the company.
Yes, this is real and challenging work, and it can take significant investment of time and effort. There are consultants that can help you get it done, if you need help. Delegate the specific effort to write pieces of the plan and get quotes to your marketing team to develop the details, of course, then spend time rolling it up.
It is possible, and far better, to build your budget this way, and defend it as the catalyst to growth. And, to do it, you must lead just as any other equal player in the board room.
Bottom line here is that any marketer that is worth it knows that standard budget parameters for marketing do not exist. The budget is based on what plan is needed to achieve reasonably set corporate goals under it’s present and next-year economic conditions.
They know to use their knowledge, skills and experience to develop a real plan that drives toward the CEO’s strategic objectives – not the marketing spend and tactics of an industry benchmark. Defend it and confidently own the seat in the executive suite as a key contributor to the company’s success and a right hand of the CEO to achieve her/his objectives.
Set those expectations so marketing is not the weak link for the coming year. The CFO and CEO will see and understand it. If not, that company is not long for this world, competitors will crush it, and if you are the marketing leader, you need to polish up your job search skills and think about working somewhere else.
Got it? Leave your comment if you do.