Marketing Budget Growth Stalls
After three consecutive years of increases, marketing budget growth has stalled, falling from its peak of 12.1 percent of company revenue in 2016 to 11.3 percent in 2017, according to the most recent “CMO Spend” study by Gartner.
Furthermore, just 14 percent of respondents surveyed in last year’s CMO Spend survey anticipated the cuts in 2017, indicating that they came as a surprise to many chief marketing officers.
The report cites two main reasons for this recession in marketing budgets: “macro-environmental upheaval” in both global politics and natural disasters—such as tensions with North Korea, Brexit, and hurricanes Harvey, Irma, and Maria; and chief marketing officers becoming distracted, either by focusing on operational and tactical measures of performance or large, cross-functional initiatives that have not provided hard economic benefits to companies.
However, the report notes that the budget cuts have varied across industry verticals, with retail and manufacturing being hit the hardest: Retail has faced harsh trading conditions, while manufacturing is adapting to emerging yet complex B2B2C opportunities.
The report offers two key recommendations as marketers go forward with less money to spend. The first is to launch a top-to-bottom review of marketing programs and commitments based on their costs, both in terms of financial and resource allocations and their contributions to overall marketing and business goals. The report suggests establishing a team that includes financial analysts to ensure the review is objective and rigorous. Additionally, it advises divestment in programs that require high resource costs yet deliver low contributions to goals.
The second recommendation is to build a proactive cost-optimization strategy that addresses all areas of marketing investment. According to the report, the strategy should focus on near-term cost cuts that can be delivered quickly, improving returns without jeopardizing longer-term business performance. This strategy should also incorporate long-term efficiencies that ensure the financial viability of marketing in the future.
The report also finds that half of marketing executives “lack financial planning muscle.” More specifically, it emphasizes that when building their budgets, CMOs must ground their plans on expected returns. However, the report states that just slightly more than half of CMOs use the advanced budget methodologies that enable this level of scrutiny, and that 47 percent of CMOs rely on basic methods that either roll the previous year’s budget into the next financial period or incrementally apply a percentage increase or decrease to the previous year’s budget. The report suggests restructuring the annual budget-setting process to allocate funds to programs that deliver the highest returns while allowing for flexibility to adapt to new opportunities and threats. It also endorses zero-based budgeting, in which all expenses must be justified for each new period, and activity-based budgeting, in which activities that incur costs are recorded and their relationships defined and analyzed.
“The situation of marketing budgets receding in 2017 does not necessarily mean that we’re going to see a huge downward trend over the next few years, but the caveat there is that it’s dependent on marketing leaders and CMOs getting to grips with delivering value to the business and demonstrating that value,” says Ewan McIntyre, research director at Gartner and author of the report. “It’s definitely not the time to panic, but it’s definitely the time, as with any change in the trend, to start to take stock. What is it that we’re actually investing in as a marketing organization? What are the programs that are actually delivering net business value? What are the items that we think we should just not be doing any longer? How do we better tie our budgets with performance?