This is the time of year when marketing budgets start to get cut.
As the first quarter comes to an end, corporate financeHow to Limit Cuts to Your Marketing Budget teams are rolling up the numbers. If there are negative cost and profit variances vs. the plan, they will look for ways to close that gap before they report quarterly results. Too often, the marketing budget is seen as the first source of funds to close the gap.
Why is that? In many companies, it is because marketing leadership has not proven marketing investment can predictably drive revenue and profits vs. investments made by other departments. The finance team and the executive team know they need marketing, but unless the marketing team can demonstrate an ROI, the budget remains vulnerable to cuts.
As a strategic growth consultant, I talk with many Vice Presidents and Directors of Marketing. Recently, many companies have been focused on survival and cost-cutting vs. strategic investment in building their brand and market share. There has been great frustration as marketing budgets were reduced at the planning stage and then cut again midyear.
Only marketing leadership can stop this trend. The process of cutting the marketing budget will continue until marketing leadership can educate management and demonstrate a better approach.
This Starts in the Planning Cycle.
The marketing planning process can take several forms.
- For some companies, the planning process is very involved. The marketing team and their agency work to develop an elaborate marketing plan, presentation, and binder. These plans can be detailed strategic growth plans or just a fancy presentation with a lot of charts. The best of these companies develop a strategic plan and tools that they will put to work all year and measure the results as they go. The worst put the binder on the shelf after the presentation and will do the same thing next year that they did this year.
- Some companies just wait for the marketing budget number to be communicated. They then allocated the budget into different spending categories. There is no strategic plan. The marketing plan is just a to-do list based on available funding than a growth plan. For some in this situation, they have given up fighting for strategic growth funds and just want to make sure they have enough funding to do what they did last year.
- A last group develops a strategic growth plan that drives achievement of the company’s strategic objectives. The plan identifies specific strategies, programs, and investments to obtain long-term strategic objectives. It identifies near-term programs that drive sales and profits this year. A strong plan channels all investment into these two categories. Some may include tactical legacy programs with limited impact on sales or strategic objectives—these should be replaced with more strategic programs over time.
Work up-front in the planning cycle can establish the foundation and expectations for future budget cutting conversations. If your company’s annual and three year business plan does not call out your strategic marketing goals and the related investment, your marketing department should be prepared to serve as the banking account to go to when your finance team is looking for money.
Each year there is pressure to do more with less. The ability to protect or receive additional budget funding will depend on the work marketing leadership has done to demonstrate that:
- Marketing gets real results—agreeing on key performance metrics and then demonstrating results helps create new understanding and value in marketing. If you cannot achieve the desired results with the funding you have, you must identify what is holding you back—and work to change it.
- Marketing is strategic—All year long, marketing leadership needs to demonstrate and communicate how the work of the marketing team and the investment in marketing is helping the company achieve its goals. If you cannot demonstrate this, revisit the focus of your marketing plan to achieve this result.
Preparing for the Mid-Year Budget Cutting Meeting
Once you have been notified that a marketing budget review is pending, preparation is needed. Marketing leaders tend to approach meeting preparation in one of four ways
- Some will go into this meeting without any preparation—waiting to see how much needs to be cut from the budget before spending time on the issue.
- Others will just plan to reduce all their programs by a little bit and limit the execution within available budget.
- Others will just prepare a list of what has been committed vs. what is available for cutting.
- A fourth group will prepare for these meetings in depth—and likely will be more successful in protecting their funds.
What Does this Fourth Group Do?
- First, they separate their marketing budget into long-term strategic, near-term strategic and tactical investments. Ideally this was done in the planning stage, but if not, it can be done in preparation for this meeting.
- Long-term strategic programs move the company toward long-term strategic objectives—cutting this funding endangers long-term company growth.
- Near-term strategic programs drive sales this year—cutting these will directly reduce profits.
- Tactical investments are programs we like but do not result in a measurable financial or strategic impact.
- Gain advance understanding of what is triggering potential budget cuts. Are sales down or are costs up? Understanding this will help Marketing be part of the solution in closing the financial gap.
- Identify proven ways to drive sales growth to solve the problem rather than cutting your way to a financial target. Prepare a proposal identifying the investment required, the potential ROI and why management can have confidence in the expected result.
- Prepare talking points on how other departments may help close the gap. Since the company as a whole has a shortfall, all departments should help in closing the gap. This will reduce some pressure on the marketing budget.
- Lastly, prepare a list in order of cutting priority of non-committed tactical investments. Prepare a separate list of non-committed strategic investments for discussion if you must move beyond the first list. Identify the budget value and the current year profit impact of each potential program cut. This list prepares you for an open, thoughtful conversation on what to protect and what to cut.
When the budget review meeting comes, approach it with a positive attitude that marketing can and will take a leadership role to help the company achieve the desired results. Identify the funding that can be freed from each department, including marketing. When reducing the marketing budget, cut entire programs rather than reducing the budget across all programs. The most important programs will remain intact.
Ideally, you have previously gained agreement to programs your company will never cut for strategic reasons. If you have not, the first budget review session is a good time for this conversation.
What Can You Do Bow To Prepare for Potential Future Budget Cut Meetings?
- Have a discussion on the strategic role of marketing and the programs the company will protect no matter what happens this year.
- Measure program results to demonstrate the ROI of marketing investments.
- Communicate program results!
- Spend time with your finance team showing them the financial and strategic benefit of marketing.
With these efforts, you will not only limit cuts to your marketing budget but also build understanding and trust to further expand investment in marketing over time!
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