Paul Magill is managing director, CMO services leader, with Deloitte Consulting LLP.
I recently asked him to share his insights on some of the best practices the firm draws on to help clients build and navigate more strategic marketing budgets.
Paul Talbot: What does Deloitte do to help its clients more effectively drive the process of creating and managing a marketing budget?
Paul Magill: Maintaining a holistic view is a challenge we see our clients face around budget creation and management.
We help them think more broadly by asking key questions, such as how does the marketing budget align with budgets in other functional areas?
What business objectives is marketing expected to achieve?
Is the budget appropriately sized and aligned with those objectives?
Has the organization created visibility into marketing spend and do you use consistent language and governance around marketing investment decisions?
Talbot: What’s the No. 1 challenge you see when it comes to marketers creating budgets?
Magill: A challenge we often see regarding marketing budgets is moving resources at sufficient scale and speed to new business priorities.
Most budgets stay the same or are slow to adapt year to year, even as business priorities change, resulting in underfunding for some opportunities.
The root cause is often a lack of confidence in market/customer analysis that identifies where the best future potential lies, versus current revenue size.
Reallocation of marketing investments is often viewed as highly risky. On top of that, current budget owners tend to be protective of the status quo.
Instead, marketers need to build flexibility into budgets to account for new priorities, and design nimble resource reallocation processes that provide speed. This allows for teams to be more agile in their approach to allocating spending.
Talbot: Budget revisions are part of the landscape. How can annual budgets be better planned to minimize the need for quarterly revisions?
Magill: CMOs often do not fully allocate their budget, holding reserve funds at the top to meet new business priorities that may arise throughout the year, and that is a good thing.
By knowing what marketing activities create business value, having a prioritized list of those activities, knowing where to cut back if budgets need to be reduced, and being clear on where to spend more if more resource becomes available, CMOs can design more realistic budgets and build the agility in spending they need.
Talbot: Based on your work with clients, how widespread is the use of statistical modeling attribution to help determine marketing budgets?
Magill: I see a two-step process in use at many organizations.
First, marketing budget requests have to demonstrate that the tactics are working, and meeting KPIs.
Second, there has to be reasonable confidence that achieving the marketing KPI leads to revenue increases or other key business outcomes. Attribution modeling contributes to the second step.
Companies are investing more time and money in such attribution modeling because it greatly increases their negotiating power with other functions in budget debates. However, CMOs also can leverage qualitative evidence of driving revenue, for instance, salesperson testimonials.
Attribution modeling largely relates to marketing’s media budget. There are many other important elements of a marketing budget, such as investments in talent, capabilities, martech, in-sourcing/outsourcing and agency changes, that all require different business case justifications unrelated to attribution modeling.
CMOs need a broad toolkit to justify their marketing budgets in business terms.
Talbot: Any other observations on the process of creating and managing a marketing budget you’d like share?
Magill: The best marketing budgets are based on a coherent market-back business strategy combined with deep insight into the customer and where/how to engage them.
Marketing budgets can then be set within a closed-loop system where impact is measured and activities and spend can be adapted and optimized on as close to a real-time basis as possible.
That’s the goal marketers should be shooting for as they think through how to improve their marketing budgeting process.
