Do you feel like it’s getting harder to justify your marketing budget? If so, you’re not alone.
Marketing budgets are on the rise for the third straight year, reports Gartner, with no signs of stopping in 2017. However, 14 percent of marketers still fear budget cuts, even as spending for digital commerce, digital advertising, and web rises, competing with other expanding marketing priorities.
Against this backdrop, marketers will find it increasingly difficult to justify their marketing budget and get approval for their initiatives, as senior executives will be reluctant to hand over any dollars without first seeing the value of their prior investment.
Indeed, marketing organizations that are able to show ROI are 1.6 times more likely to get higher budgets, according to a HubSpot report.
There are many ways marketers can prove the value of their efforts. When looking at digital marketing, for example, organizations can measure how those activities contribute to ecommerce results, complement the success of offline events, or augment Social ROI.
Whichever measurements you choose, the key to communicating that value to senior management is to treat your budget as an investment that will generate returns over time, rather than speaking in terms of expenses.
Here we’ve gathered some important steps to help you get through this year’s budget approval process.
Justify your marketing budget with these three steps:
1. Know how much you should be spending.
Start by getting a handle on your marketing budget allocation by looking at what others in your industry are doing. Fortunately, there is no shortage of benchmarking information out there, much of it available at no cost.
When viewing these resources, just be sure that the numbers you consider match your own company in terms of industry, type, or size.
The CMO Survey is an annual report that includes an in-depth section around annual marketing spend, including spend by industry. This report also has a really useful industry breakdown of marketing spend by category, which includes analytics, social media, market research, training, and others.
Analyst reports are also a great source for finding benchmarks around spending, including Forrester’s Digital Market Forecast and Gartner’s CMO Spend Survey. Note that these complete reports and webinars are available for a fee.
Finally, check out our post on marketing spending trends for 2017 for a roundup of additional benchmarking sources. With benchmarks in hand, you can justify to senior management that the level of spending you’re requesting is in line with industry norms.
Once you better understand how much you should be spending in each area, record your budgeting figures with a tool like The Ultimate Marketing Budget Template, and then turn your attention toward the hard work of proving the value of your marketing efforts to senior management so you can get those numbers approved.
2. Gather up your KPIs.
You’ll need to define your key performance indicators (KPIs) before you spend any of your marketing dollars so you can refer back to them at the end of the year to measure your success. You can view these KPIs a way to predict future performance.
Because KPIs should align with your marketing and business goals, measures vary between companies. When determining your KPIs, keep in mind that, you’ll want to choose metrics that allow you to show clear gains, whether in sales, conversions, or customer value.
KPIs that help you prove marketing ROI
Customer Retention Rate: This is a measure of the percentage of customers that continue to buy your product or service over a period of time. Customer retention rate is a good measure of the effectiveness of your customer service and how well you’re delivering the kind of customer experience that makes people want to return.
Customer Lifetime Value (LTV): This metric shows the projected value a customer is worth over the lifetime of the relationship. By uncovering your most profitable customers, you can take steps to channel your resources more effectively for higher profits in the future.
Customer Acquisition Cost (CAC): CAC is the cost of convincing a customer to buy your product or service. Obviously, you want to keep this number as low as possible, as a high CAC could be an indicator of inefficiencies in your marketing organization.
Sales Growth: Marketing exists to increase sales, so demonstrating how your marketing has increased sales revenue will make management sit up and take notice, and provide a convincing argument for increasing your budget.
This is by no means an exhaustive list of KPIs, but is meant to get you thinking about which measures are most important to your own organization.
3. Make your case to senior management
With benchmarks and accomplishments in hand, it’s time to make the ask to senior management. As you make your case, it’s important to keep in mind how you position the marketing organization. If management views marketing as a cost center, the chances of getting higher budgets approved are slim.
Turn the conversation from “expenses” to “investment” so that you can get executives to think of marketing as a group focused on generating value.
The good news is that business owners are beginning to shift their perception to marketing as a revenue center. In the next few years, according to a report by The Economist Intelligence Unit, marketing will less frequently be seen as a cost center, and more often as a revenue driver.
The key to encouraging this shift in thinking is to use data to demonstrate how you drive that revenue. John Dragoon, CMO of Houghton Mifflin Harcourt, noted in the report:
“You reap what you sow. If you don’t accept accountability for being measured in terms of your contributions and outputs, then you are viewed as a cost center. If you aggressively pursue an agenda of accountability and transparency, then you’ll be viewed as a trusted partner and adviser. Even if you don’t have a formal P&L, you’re seen as a revenue owner.”
Here are a few tips from ChiefMartech on how you can get executives to view marketing as a revenue center:
- Educate your company on the role of marketing in the organization and how it’s driving business.
- Work with the finance department to jointly define the KPIs most important to demonstrating success.
- Get involved in what matters to your company by identifying initiatives likely to generate the most profits. If you can make a difference in these areas, both you and the overall marketing function will be seen as valuable revenue-generating components of your organization.
Want to plan your marketing budget effectively? Use our free Ultimate Marketing Budget Template!