Its the start of a new year.. The time when most organizations embark on the grand “budgeting” exercise.. And most senior leaders are scrambling to come up with those magic numbers – Revenues, Profitability, Operating Margins, Investments, Big BETS…
Whether it is a service or a product company, big or small…
This annual exercise is fairly common across the board…
And along with it comes the decision around the MARKETING BUDGET…
Having been a part of this budgeting exercise for several years now, and also having discussed this subject at length with fellow marketers, I can’t help but dedicate a post to this subject..
So fundamentally Who decides the MARKETING BUDGET in your company will determine
i) How much the budget is?
ii) What you can do with that budget?
iii) What you eventually do with that budget?
In my experience, there are only 2 ways the Marketing Budget is usually determined:
* The TOP-DOWN Approach
In this approach, the marketing budget is decided by those at the top – The CEO (Chief Executive Officer) or CFO (Chief Financial Officer) or CIO (Chief Information Officer) or COO (Chief Operating Officer) or all of them together, with some involvement with the CMO (Chief Marketing Officer) / Marketing Head. Of course in some scenarios, the CMO / Marketing Head plays a major role..
Typically this number is arrived at by a rule-of-thumb, which is one of the following
(a) X% over and above last year’s marketing budget
(b) Y% of overall revenues (Y ranges from 0.001% to 10% is what I have seen)
(c) Z% less than last year’s marketing budget (since marketing costs can be reduced by leveraging Social channels???)
And this number is approved and shared with the CMO / Marketing Head as the annual budget for the year. In fact, several organizations strongly recommend marketing teams to leverage technology and social to reduce / further optimize on marketing costs.
In most scenarios, the Marketing Teams are dissatisfied with this budget. One because their views and opinions were simply not considered. And in most instances, they are left wondering what they can really achieve for the year ahead
* The BOTTOM-UP Approach
In this approach, the Marketing Budget is worked out by a team of Marketing professionals based on the Marketing Goals for a year in line with the Business Strategy. This is usually split up into quarter-wise milestones which include Events (Analyst, Partners, Industry, etc.), Global Branding campaigns, CXO Connects, Building Partnerships, Positioning, Strengthening Business Ecosystem, etc. Once discussed and approved by management, the Marketing team starts work immediately since they have already thought through the details of what they can achieve
In most scenarios, the Marketing teams end up more satisfied since their views, opinions and plans were heard by management. This makes them more excited and committed to start work as soon as they receive the formal approvals
In my opinion, the BOTTOM UP Approach is recommended than the TOP DOWN Approach
However, the fact is that most organizations continue to adopt the TOP DOWN Approach
What’s your view? Leave a comment to let me know