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SiriusDecisions. All Rights Protected and Reserved. 1 Research Brief Editors note: To access an interactive tool for strategic allocation, use “The SiriusDecisions Marketing Contribution and Budget Allocation Tool,” which allows organizations to gain clarity and agreement on the business segments that they need to address during planning, as well as the primary, secondary and tertiary revenue drivers for each segment. To access an interactive tool for budget allocation comparison, use “The SiriusDecisions Marketing Budget Allocation Comparison Tool,” which allows CMOs, marketing operations and functional budget owners to compare their organizations allocation of programs, personnel, systems/tools and outsourced services spend to a set of aggregate peer data. Divide et impera (“divide and conquer”) is a time-honored strategy attributed to King Philip II of Macedon, who dominated the complex rivalries of Greek city- states during the 4th century B.C. by preventing them from uniting against his army, and subjugating them one at a time. While marketing budgeting may be a similarly complicated challenge, a divide- and-conquer approach can tame it as well. In this brief, we explain how to use a strategic allocation model that drives the budgeting process with a series of manageable, logical steps. Fiscal Year Allocation Every marketing organization that undergoes a formal budget planning process has a budget history. The next years budget will be a step up or down from the current years budget, so rather than attempting to build a new budget from a zero base, use an estimate of next years total budget allocation as a starting point. Split the allocation into two pools (see graphic). Headcount and capital expenditures. This amount represents the people- and systems-based costs, which are the least flexible portions of the budget in the short term. Estimate all people-related costs, including compensation, benefits, training and travel. If there are exceptional travel-related costs associated with a program (e.g. an annual conference), they dont need to be covered here. In some cases, the accounting department may manage capital depreciation and amortization outside the marketing allocation, in which case the consideration of capital expenditures can be omitted here. Marketing programs. This is the discretionary marketing budget that will be further subdivided, generally determined by the fiscal year allocation minus Marketing Budgets: The Strategic Allocation Model Dividing the marketing budget process into manageable components helps achieve both clarity and alignment Four major sources should drive the allocation of marketing spend: corporate strategy, sales goals, business unit goals and marketings own goals Organizations that lack a true campaign strategy will find that a lot of their funds are wasted on disconnected, one-off tacticsResearch Brief SiriusDecisions. All Rights Protected and Reserved. 2 the headcount/capital expenditure portion. This constitutes the development and execution fund for all campaigns plus everything else considered an expense item, including outside services. Perform a check at this point: Does the proportional allocation between these two segments of the marketing budget make sense? Examine the SiriusDecisions budget benchmark to compare your allocation to a peer group, and seek explanations for any discrepancies. Divide the Marketing Programs Pool Next, separate everything thats associated with a marketing action into campaign and out-of-campaign allocations. Estimate their proportions as follows: Campaign spending. Include all expenses associated with asset development, global execution and field execution of campaigns. SiriusDecisions defines a campaign as the amalgamation of four program types: reputation, demand creation, sales enablement and market intelligence. Out-of-campaign spending. Include all remaining costs associated with activities not tied to specific campaigns, such as shared services, annual conferences, one-off tactics, corporate marketing and marketing operations. Its now time for another check: Does the ratio of campaign to non-campaign spending seem reasonable? Organizations that lack a campaign-based approach will likely find they fund a host of tactics that truly link to nothing else, meaning their planning approach and their financial allocations should be reconsidered. Take a Strategic View Now that discretionary funding is set apart and further subdivided into campaign and non-campaign pools, identify the strategic goals that must be prioritized and achieved via plans that consume resources. This alignment step enables marketing to demonstrate that its actions are synchronized with business objectives as well as marketing stakeholders who directly and indirectly influence how marketing sets its priorities.Research Brief SiriusDecisions. All Rights Protected and Reserved. 3 Four major goal sources drive marketings strategy: corporate strategy, sales goals, business unit goals and marketings own goals. The divide-and-conquer approach is to first gather information about corporate goals and decide how they will be addressed by campaign and out-of-campaign actions. Next, identify sales goals (e.g. direct, overlay, channel) and how marketing campaigns and out-of-campaign spending can help achieve them. In many organizations, there are business units with some goals that overlap with sales and corporate goals (e.g. revenue) and some that must be supported separately (e.g. a product/ solution launch within industry and horizontal marketing efforts). There may also be a services or support organization with goals that must be addressed by the marketing strategy and budget. Finally, marketing may have its own goals (e.g. annual conference, Web site revisions) that must be factored into the budget. All of these goals will result in activities that will be funded by discretionary program funding, and there will also be human capital implications. For example, skill acquisition and development may be a requirement to enable an action driven by a discretionary spending priority. Conquer the Campaigns Now that all relevant goals have been identified and a combination of campaigns and out-of-campaign functions has been defined to address the goals, the next step is to allocate the budget to the different campaigns. For example, if there are four campaigns, 40 percent of the campaign spend might be allocated to one of them, 30 percent to another and 15 percent to each of the remaining two. Some campaigns may be focused on one or more industries, and some might also include a horizontal focus that supports each industry or functions independently of the industries. Within each campaign, determine if theres a split between industries and horizontal activities, and allocate a proportion of the funds available for that campaign to each. Next, divide spend into the previously defined four program types: reputation, demand creation, sales enablement and market intelligence. Within each industry or horizontal segment of each campaign, determine a proportional allocation of investment among each. Once the campaign proportions are decided, look at the out-of-campaign components. Out-of-campaign elements are not tied specifically to one campaign, but rather support the organization in a general fashion. Identify the top-level functions (e.g. shared services, analyst relations, public relations, Web site), and then divide and conquer the elements within each function. For example, shared services can be further divided into creative services, analyst relations, Web site and public relations. In some cases, costs may be known (e.g. subscriptions, agency retainers); set aside a portion for “other” that can be used to fund unanticipated activities. As the spending picture becomes more clear, it may be necessary to rebalance the campaign/out-of-campaign allocation.This content is copyrighted by SiriusDecisions, Inc. and cannot be reproduced or shared without prior expressed written permission from SiriusDecisions, Inc. SiriusDecisions helps business-to-business companies worldwide improve sales, marketing and product effectiveness. Management teams make more informed business decisions through access to our industry analysts, best practice research, benchmark data, peer networks, events and continuous learning courses. SiriusDecisions is based in Wilton, CT with offices in London, Montreal, San Francisco and Waltham, MA. 187 Danbury Road, Wilton, CT 06897 203.665.4000 fax 203.563.9260 siriusdecisions Research Brief Make Peace With the Natives The result of these steps is a logical and hierarchical representation of the marketing budget. It isnt yet a detailed breakdown of individual costs, and doesnt consider the timing of spending, but it does show a clear linkage between goals of the business and how they will be supported by marketings activities in the next fiscal year. Since its easier to live in peace than to wage war, the completion of this high- level view of the marketing budget is a good opportunity to conduct some diplomacy by meeting with marketings constituents (e.g. sales, business units). In each case, develop a customized view of the budget plan that identifies the constituents specific goals and demonstrates how marketing will address them. Enter into each discussion as a negotiation to help establish ownership of the marketing plan by the constituent, which will ease the process of making tradeoffs and reallocations. This is also a good time to secure commitments for shared investments, such as list services and sales training initiatives. These discussions should help ratify or adjust the overall marketing allocation. Because the high-level breakdown of the anticipated budget focuses on alignment with goals, it makes it easy to consider marketing spend in terms of business priorities. If additional funds are required to address corporate and organizational goals, the budget can be increased, decreased and rebalanced with ease. Additionally, as the marketing budget is executed, priorities will inevitably shift, and having the ability to return to the spending model at this conceptual level will make it much easier to collaboratively adjust the resources devoted to various campaigns and programs. The Sirius Decision A divide-and-conquer approach makes it easier to focus on strategically linking corporate, sales, business unit and marketing goals to campaign and out-of- campaign allocations without getting bogged down in details. It also makes it easy for marketing stakeholders to understand the implications of shifting investments from one area to another, and to participate effectively in the negotiations required to finalize the marketing budget.
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