Recently I came across an interesting podcast that was describing how the company decided to cut the funding for the most successful and profitable program they were running. Why? To increase their investment capacity.
Everybody loved that program and was 100% committed to it when seeing the result and impact they were making. Nobody wanted to just let it go, as no other activity came close to generating as much revenue as this program was generating. And so, the team decided to do everything to keep it. Well. nobody said they can't execute the program; it was just that company needed to locate the additional funding to fuel new business. When the team realized this, this notion stimulated the prioritization discussion, to focus the available budget on the activities based on expected results. From that moment on the company had a new approach to investing - while sales targets have increased the budget was optimized by 10% yearly to fund new business growth. Everybody knew this will happen, so they measured the impact, innovated, and planned for those activities that delivered the highest outcomes.
A very relevant marketing story for businesses with growth aspirations. When budget and impact conversations continue to drive performance, there is constantly a need to demonstrate the near-term value. According to McKinsey 83 % of CEOs look to marketing as a growth engine for the business. The majority of CMOs and other marketing leaders are thus under increased pressure to prove the marketing ROI to the key stakeholders.
A decade ago, we used to talk about protecting the marketing budget. Today the discussion is more focused on securing the investment capacity by moderating and guiding the discussion around customer needs and wants, and how to prioritize available funding by providing a clear, transparent, and persuasive view of how marketing creates value to the other key stakeholders.
Prioritization and buy-in
In today’s uncertain and recessionary environment, marketing spending is under increased scrutiny and is susceptible to significant cuts. Gartner measured that marketing budgets as a percentage of revenue have fallen from 11% in 2020 to 6.4% in 2021, reaching their lowest level in recent history, So, to get buy-in for critical marketing investments, CMOs must provide a more complete, clearer, transparent and persuasive view of how marketing creates value, demonstrate how it’s driving growth.
Providing a more holistic view of marketing’s contribution to the organization, being focused on outcomes, and ensuring that stakeholders have a clear and transparent understanding of marketing’s impact, is the right way to go.
The power of measurement and transparency
CEO and CFO as budget stakeholders often have only a vague idea of how marketing activities are linked to business performance. So, it's quite normal they are skeptical and hesitant to support additional investments. To overcome this challenge CMO or other marketing leader needs to clarify how marketing activities drive value - whether they are intended to drive growth, increase efficiency, or when those contribute to another strategic objective. At the same time, there is a need to build C-level confidence in the measurement of marketing performance by making sure metrics are connected to value drivers, measuring progress against specific KPI, or demonstrating success through ROI.
Also, partnering and communication with finance can effectively address the skepticism about marketing’s contribution to the business. Being upfront and honest with measurement, understanding the marketing impact is critical. By transparently providing the appropriate level of budget details, categorizing the value individual activities that are expected to deliver, we are supporting finance in their understanding and supporting them in making make a more informed decision about initiatives and impact they are delivering.
Securing incremental budget
Facing a reduced investment capacity, CMOs are reprioritizing the spending commitments toward performance with digital dominance currently at 72.2% according to Gartner. Though the illusion of savings today presents a risk for tomorrow in terms of customer relevance, the share of voice, and the ability to reach customers with targeted and timely messages if maintained too long.
When faced with a prolonged period of multiple, decremental budget cuts finance can become comfortable with the lower marketing cost base. Also, marketing is becoming very flexible and has proved that can do more with less, holding back noncritical spending in the face of a crisis. In such a situation marketing leaders can take the opportunity to use the data and build a compelling case for new marketing investments by clearly communicating the benefits and providing argumentation if stakeholder assumptions are being flawed.
Change is prompted by the constant need for growth. And growth is operated by funding and focus. Experience dictates that forward-thinking leaders will release long-term spending after short-term budget cuts. In doing so, they are rethinking how to best utilize past investment and capabilities while connecting with their customers, making progress step-by-step.
Marketing, therefore, needs to change the perception and attitude of how it approaches the budget topic and embrace the quarterly investment rhythm; gain the flexibility to adapt to the changing customer behaviors to influence new demand. Connecting customers with business means taking charge of customer insights, becoming more digital and data-driven across all customer touchpoints, while ensuring the data is digestible and actionable; by becoming a customer voice across the organization to drive the change and influence marketing investment capacity as part of key strategic decisions.