In many ways, marketing has been at the forefront of digital transformation. Scott Brinker from Chief Marketing Technology has estimated the growth in marketing technology (MarTech) has exploded from 150 different solutions in 2011 to almost 5000 in 2017.
Gartner predicted in 2011 that “By 2017 the CMO will spend more on IT than the CIO.” At the time it was a polarizing statement, especially for CIOs – but one which put them on notice that this was no longer about reeling in “shadow IT” from line of business leaders, but rather coming to terms with the fact that marketing was becoming more strategic and expanding its responsibilities.
There were resources, budget and processes put in place to select, purchase and manage their own of marketing technology. Fast forward to today, and Gartner’s annual CMO spend survey showed that for 2016, CMOs allocated 3.24% of revenue to technology spending, which is very close to the 3.4 percent of revenue CIOs have allotted – with no slowdown in site.
In the fourth annual “State of Marketing” report, Salesforce Research surveyed 3,500 marketing leaders and found that customer experience continues to reshape the marketers’ mindset, shifting priorities are sparking organization change, and technology is raising the bar for efficiency and personalization.
Over the past two years, we’ve seen a surge in the use of newer channels like video advertising, SMS, mobile apps, and native advertising/sponsored content (Figure 1). The percentage of both B2B and B2C marketers using video advertising, for example, has risen by triple digits over the last two years. Despite its well-established presence in the B2C marketer’s toolbox, email is still growing at a significant rate.
Email’s number two spot indicates that marketers may be testing new channels in conjunction with proven ones to find combinations that work for their consumers. It should come as no surprise that marketers spend 34 percent of their total budget on channels they didn’t know existed just five years ago and they expect that to increase to 40 percent by 2019.
Figure 1: Actual Channel Growth 2015-2017
So what does that all mean? In the age of the connected customer, marketing is rethinking everything from job roles, to new functions, to leaning even further into adopting technology, particularly Artificial Intelligence (AI), to create and encourage a data-driven, customer-driven culture. Furthermore, brand perception and the experience customers have with the brand are becoming the new competitive battleground.
All of this points to the fact that the role of marketing isn’t what it used to be, and neither are the budgets required to keep up with the pace of change in both customers and channel preferences. With that in mind, here are three tips to ensure your marketing budget will be able to keep up, and help you deliver meaningful, compelling, and break through experiences for your customers.
1) Marketing Isn’t About Messaging
The “Mad-Men” days of marketing are long gone. The idea that marketing’s role is to ‘talk at’ customers and send messages out to the world telling them about how wonderful the products and services they were selling is no longer effective.
That idea is one for the marketing history books, for one simple reason which Doc Searls and David Weinberger sum up perfectly in Cluetrain Manifesto, “the product of mass marketing was the message, delivered in as many forms as there were media and in as may guises as there were marketers to invent them. Delivered locally, shipped globally, repeated inescapably, the businesses of marketing devoted itself to delivering the message. Unfortunately, the customer never wanted to take delivery.”2016 State of Marketing report while budgets came in second.
Without a new mindset and a full understanding of how these changes will impact current budgets, executives will default to the status quo and leave marketing budgets alone. As a marketer, you must get creative on how to get everyone on the same page. Without alignment, you will find yourself ill prepared to combat the pace of change in the world of marketing.
2) Marketing Budgets Should Fit Your Growth Stage
Not all marketing budgets are created equal. Depending on the stage of your company, whether you are a start-up or an established brand, should have an impact on budget allocation. Established companies who are only looking to maintain current market position require a very different budget than those looking for hyper- growth. Maintaining current growth rates could be accomplished with investing 2 -6 percent of gross revenue on marketing.
A recent poll of CMO’s, VC’s, and other marketing thought leaders we conducted revealed a large agreement around best in class marketing budgets falling between 7-12 percent of gross revenue. Note both those are just looking to maintain, and the average budgets are based on ‘gross revenue’. This becomes a key difference in budgets between fast growth and everyone else.
If your company is looking to grow quickly, and have growth of more than 50 percent per year, you need to consider yourself in the ‘hyper-growth’ stage. Companies in this stage must realize best in class marketing budgets are based on “projected revenue”, not current “gross revenue.” In a recent conversation with Hana Abaza, growth marketing expert and head of marketing at Shopify Plus, she suggested companies who base their fast growth marketing budgets on “Percentage of Revenue Target” rather than percentage of gross revenue are able to keep their marketing budget in line with what the actual expectations and demands of the task at hand.
Abaza also mentioned she usually sees the marketing budgets of hyper-growth companies break down into 30 percent of the budget used for headcount, 55 percent for programs (campaigns, programs, etc), and 15 percent for other (tech, swag, etc). This should give you a pretty good idea of what a best in class budget looks like based on your growth stage, and how they break down.
The chart below gives a good breakdown of different stages of growth, and how marketing budgets are set, and broken down across headcount, programs, and technology.
3) Learn To Leverage Stretch Budgets
Marketing is in a constant state of flux, which makes it hard to set annual budgets without any flexibility. It feels like tools, social media channels, and customers change every day and it’s hard to keep up if your budget is too rigid. Which is why Tim Kopp, marketing technology advisor and former CMO of ExactTarget, prefers to have, “a marketing budget which (he) could snap apps into.”
Kopp knows the speed at which things change, and while CMO at ExactTarget he knew he could only achieve as much as his budget will allow. His flexible budget idea helped lead to ExactTarget’s explosive growth. The flexible budget and what they were able to do with it, helped them claim their industry leader position before being acquired by Salesforce in 2013 for $2.5 billion.
The trick to creating a flexible budget is to have the conversation up front. Flex budgets operate just like a line of credit. They are pre approved, set up, and have terms and conditions for accessing the money and what it can be used for.
To set up a stretch budget, you need to first set up stretch goals. The amount of ‘stretch’ is up to you and your boss, but any number will do. This will get refined over time, but a good example is to start with a pre defined number, say 50%.
So if your goal for webinar attendance is 300, and you hit 450, then you’ve just opened up an additional stretch budget to maximize on the tactic you leveraged to reach your stretch goal. This allows you to maximize the impact of great ideas, by having the money instantly accessible, and is a great way to then make the case for a larger budget the following year.
These three tips will help you make the argument for a new look at your budget, help you show what your budget should be based on your stage of growth, and give you a flexible way to prove out new ideas and access new funds. Budgets are not sexy, yet they are one of the largest determining factors in creating high performing marketing organizations that show measurable results.