Welcome to the second installment in the two-part series: Make your Marketing Budgeting Process More Purposeful and Less Painful. In part one we introduced the concept that the role of strategy is to connect an organization’s capabilities to the external environment. And critical to that effort is the budgeting process to fund those capabilities.
We also introduced the Four Lenses of Budgeting Methodology: Strategic Alignment, Benchmarks, Comparative Measures and Redundant Spend. We covered Strategic Alignment and Benchmarks in detail so let’s dive right into the other two.
Using comparative measures
Many marketing leaders I speak with list measuring return on investment (ROI) or return on marketing investment (ROMI) as a top priority. A noble and worthwhile effort to be sure. Being able to draw a connection between marketing efforts and revenue impact is critical for establishing credibility within the executive team. It’s also immensely helpful when you’re proposing budget increases. The promise of measuring ROI is that we marketers can compare the relative effectiveness of our activities and use that data to inform our decisions about future marketing investments.
Of course, the return on investment metric isn’t without limitations. Your attribution model – the way your organization assigns revenue to marketing activities – can skew the return each activity generates. ROI works exceptionally well for assessing program spend effectiveness but tends to fall short when assessing shared services or activities that don’t directly correlate to revenue. Measuring and accurately distributing these costs to the demand efforts they ultimately support is time consuming and most organizations lack discipline in this effort. As a result, these costs are distributed retroactively and often evenly across activities instead of proportionally to the appropriate activities.
Avoiding the pitfall of relying too heavily on ROI is simple, but it isn’t easy. You need to examine multiple dimensions of performance that impact marketing. This includes overall return, as well as: lead quality, deal velocity, average deal value, and customer lifetime value. By expanding the comparative measures you assess your marketing activities against, you mitigate the risk of relying too heavily on a single dimension in your decision making.
Redundant or duplicate spend
Matrixed organizations utilize functional specialization to help achieve greater performance and operational efficiency. Within marketing organizations, this specialization often occurs around technologies (web, CRM, marketing automation), products, and traditional marketing activities such as branding and events. This splintering can yield functional-specific benefits but also creates activity and spend overlaps across functions.
Technologies that perform similar functions, disaggregated spend across similar service providers, functional silos that establish their own operations for activities such as content, decentralized operations across regions: these are just four examples where your matrixed organization can create gluttony in your budget.
Resolving redundant spend is straightforward in theory. It’s messy as hell in practice. You’ll need to re-architect how your team works. You may need to restructure your organization to recentralize distributed functions. Yet within the increased effort lies the potential for compounding returns. As these efforts lead to greater and greater effectiveness and efficiencies, you’ll have the opportunity to invest the newly available funds.
Wrapping it all up
Taken individually, none of these approaches is sufficient to produce a purposeful and disciplined budget. Each has merits and limitations that can be balanced by using a combination of these methodologies in your budgeting process. Which methodologies do you currently utilize? Which will you consider using in the future? Let us know in the comments below!
If you really want to determine where to spend your next marketing dollar you need to examine marginal costs and marginal return. These metrics tell you if it makes sense to increase your investment in any given activity. This article by Daniel Kehrer on Forbes.com does a great job of explaining it all.
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Justin Yopp is a Marketing Strategist at The Pedowitz Group. He has spent the last ten years crafting business and marketing strategies for local and global businesses, with an emphasis on demand generation. Justin helps organizations accelerate beyond best practices to quicker positive ROI, increase internal buy-in and adoption, and capture more market mindshare.
- Posted by Justin Yopp
- On 12/13/2016
- 0 Comments