Marketing Operations: How to Build Your Marketing Budget

This is part 1 in the series “A Brief Introduction to Marketing Operations”.

A few weeks ago we posted a brief introduction to marketing operations, which has led us to this 4-part series on the pillars of marketing operations, including budgeting, technology, measurement and processes.

We started with budgeting, because it happens to be one of my favorites. In a past life, I was hired to help develop the marketing operations department of a large global technology company. This was about 3 years ago – right when marketing operations began to gain some interest in the enterprise space.

I was reporting in to a very analytical CMO who told me that my role would be to help her turn marketing into a performance-driven organization. By doing this she insisted we needed to start with marketing operations. As she was a ‘numbers’ type, we started first and foremost with the most important pillar of marketing operations – the budget. Our goal was to build a case for increasing marketing funding. Below I will outline the steps we took, you can also follow these same steps to help you reallocate a marketing budget or start from scratch.

Here was our process:

Identify and categorize our existing spend.

Depending on the size of your company and how detailed you want to get, this exercise can take anywhere from 2 weeks to 6 months. First, it is important to standardize on marketing program categories by using IDC marketing spend taxonomy, Sirius Decisions, or your own model. The key here is to make sure that everyone in the company (marketing, sales and executives) is on the same page.

After you have defined your categories and have begun to categorize your existing marketing spend, look to identify any additional spend. Talk to other departments outside of marketing (like IT and Sales) to see if there is any additional spend hidden in their departments that should be reflected in the marketing budget.

Finally, consider separating the cost of people (headcount) vs. the cost of your actual programs. For those unfamiliar with the concept, headcount is typically composed of the salaries of internal staff and/or the costs of outside resources. Because most of the large research organizations that provide benchmarks in marketing spending separate people from program, we decided to as well. Once removed the marketing headcount from the budget, we were able to compare our program marketing spend to the benchmarks.

Compare against best practices and benchmarks.

This is where things got a bit tricky for us. In order to decide how much you should be spending on marketing and more specifically on specific programs, like digital marketing or events, it is important to compare yourself to others in your industry to see how they spend. There are two ways to do this:

Custom Benchmark: This was the path that we decided to take. Because we had a hunch we were grossly underfunding marketing, we really needed to build a strong business case. We did a load of detailed research with IDC and even conducted a custom benchmarking research with IDC to determine how ‘like’ companies were allocating their marketing spend. We were able to get specific spend allocations based on each of our program categories to compare.
Online Benchmark: Anyone with a computer and willpower can find a ton of great online content related to marketing budgeting, including marketing spend guidelines and budgeting benchmarks. Here is some general guidance from CMO Council–to help you get started.

If you want to take it a step further, here are a few things to consider:

Make sure that the benchmarks fit your industry. Check out this report from Hubspot that identifies top marketing investments based on these four industries: consumer products, information technology, financial services, and software. There are vast differences between the way that a CPG company allocated marketing spend vs. a software company vs. a computer hardware company. Try to align as close as you can with an industry or product.
Align your categories properly. In some cases you will see Digital Marketing lumped together, while others will group benchmarks for each subcategory in Digital Marketing (website, SEO, Advertising, etc.). Check out our free download at the end of this post for some great digital marketing spend benchmarks.
Be aware of people vs. program marketing spend allocations. As I mentioned earlier headcount was deducted from our marketing spend before we went into the benchmarking exercise. Make sure that as you begin to compare marketing spend allocations you are comparing apples to apples – either by including or excluding headcount.

Define marketing budget and allocations:

After you review the benchmarks, you will get an idea of the optimum spend for your business. In some situations, the number might appear much higher than you had expected. If you can’t afford to follow that guideline, it’s OK. Keep this as a guide for future planning. In many cases, you might start with a smaller overall marketing budget, but you can apply the spend allocations by category.

For example, if you see that the benchmark is telling you that you should be spending 40% of your budget on digital marketing, 30% on events and 30% on advertising, try to allocate you budget accordingly. This way you will be able to see if the recommended marketing mix is working for you. There are many different models to follow; here is a great article by Chief Marketer that suggests some models to get you started.

FAQs:

Q: How does the process of reallocating a marketing budget or starting from scratch differ depending on the size and structure of a company?
A: Reallocating a marketing budget or starting from scratch can vary significantly based on the size and structure of a company. Larger companies may require a more detailed and lengthy process of identifying and categorizing existing spend, potentially taking several months to ensure accuracy and alignment across departments. In contrast, smaller companies may have a more streamlined process, possibly taking only a few weeks to establish budget categories and assess current expenditures. Additionally, the involvement of different departments, such as IT and Sales, in identifying additional spend may also vary depending on company size and organizational dynamics.

Q: Can you provide examples or case studies of companies that successfully reallocated their marketing budgets using the outlined process?
A: Examples or case studies of companies that successfully reallocated their marketing budgets using the outlined process can provide valuable insights into practical applications and outcomes. By examining real-world scenarios, readers can gain a better understanding of the challenges faced and strategies employed during the budget reallocation process. Furthermore, case studies can illustrate how different industries or company sizes approach marketing budgeting and allocation, offering a diverse range of perspectives for readers to consider.

Q: What are some common challenges or obstacles that companies might encounter when comparing their marketing spend against benchmarks, and how can these challenges be overcome?
A: When comparing marketing spend against benchmarks, companies may encounter various challenges that could impact the accuracy and effectiveness of their analysis. One common challenge is ensuring that the benchmarks used are relevant and applicable to the company’s industry and business model. Additionally, discrepancies in how marketing categories are defined and measured across different benchmarks can introduce complexity and ambiguity into the comparison process. Overcoming these challenges may require careful validation of benchmark sources, customization of benchmarks to align with specific business contexts, and clear communication of methodology and assumptions used in the analysis.