Is your marketing working? Part 3 Your 2022 marketing budget

Is your marketing working? Part 3

How you should look at your 2022 marketing budget

by Trip Jobe, CEO, Rand Inc.

Per Gartner’s CMO survey, marketing budgets fell in 2021 as a percentage of total revenue from 11% to 6.4%. We have talked to several leaders who are still evaluating their marketing budget plans for 2022. The one thing we know for certain is that it’s going to be a fluid market with both opportunities and challenges.

So, I want to give you some different ways to look at your marketing spending in 2022.

Starting with the concept of budget

I understand the need to have a plan, and you should have one. However, it is more critical than ever in these uncertain times to have flexibility.

My experience is the best business leaders approach the budget to be approximately right in November, but adapt and update as we move through Q1, Q2, and Q3. In this manner, you can hold back 10-15% of the budget as “uncommitted” early on and it can be flexed in or out based on results.

If you take this approach, also be willing to ask for the ability to flex extra money, if results are exceeding plan! The key is showing leadership that 98% of your budget isn’t spent on day one and gives them more confidence in committing to your proposed investments in marketing. Occasionally, I encounter a leader who will stop spending to stay within budget even though the programs are bringing in sales above budget! This is so crazy and makes little sense. All it does is verify the stereotype of marketing as an expense item. Just as important is the need to build your marketing plans in a way that aligns with how you plan to grow in 2022. I’m sorry marketing leaders, but we don’t grow based on 10% email, 30% SEO, etc. We grow based on a matrix of our customers and products and services.

The marketing mix is used to unlock the potential within these areas. Too often, I see businesses plan to launch a major new product or service and only plan <5% of their budget to the product. Then they wonder why it didn’t gain legs quickly. Instead, you need to align with your sales and ops organizations, gain a strong understanding of growth expectations and what will be driving that growth. In this approach, you take an aligned plan to your C-Suite that shows your budget as a critical part of meeting and exceeding revenue goals, not about tactics. One key for marketers is to think and talk more like the C-Suite in communicating your budget requests and goals. What are some ways to accomplish this?

Frame marketing budget by segments

I believe in categorizing your marketing spend to align with your business goals NOT the tactics that you use. We’ve seen so many examples of marketers listing their budget as 20% on website, 10% of communications, etc., and wonder why they get challenged on the effectiveness of these tactics. Does your website focus on new or existing customers? Do you need to augment the site to enter a new market? How will your event and email programs focus on new product launches? These are just a few examples. Think of categorizing your marketing spending as shown in the Marketing Budget Primer diagram below.

Aligning marketing spend

In this format, I can look at how our marketing budget is designed to drive business. If asked, "how does our plan achieve growth in new customers?” I can respond that we have 15% of the budget allocated towards initiatives focused on growing new customers. If the question is, “how much are you focused on driving new products and services?” I can answer that we have 25% of the budget targeted to new products and service campaigns. Why is that important? Well, it should align with your revenue growth as depicted in this chart:

Of course, you need to be able to answer questions on how much spending is devoted to the website, PR, or email, but is that as critical to the C-Suite as the segments that you are driving? By starting with growth drivers, you take away the bias around your marketing mix. Think about how the manufacturing team segments their budgets each year. An example is 45% for people and training, 10% for safety, 20% for preventative maintenance, 25% productivity improvements. It sets the stage for good discussions about whether your efforts are aligned with the needs of the business.

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