When it comes to marketing planning and budgeting, I believe that most companies get stuck trying the same things month after month, and seeing results that are less than optimal. Here’s how it goes down. The organization agrees on an annualized assumption of marketing spend and marketing return. The head of marketing allocates dollar amounts to specific marketing channels or line items: online ads, events, personnel, contractors, design, and so on. This gets turned into a marketing plan / calendar and spend gets broken down by quarter and month for specific tasks, programs, campaigns, etc.
Budget becomes plan, becomes marching orders.
This is all well and good, and it is the right approach with the majority of a company’s marketing funds. However, I advocate for setting aside a portion of a marketing budget as discretionary. Think of it as Marketing Research & Development. Let me describe where I developed this belief, and then explain why this approach can work.
Outside Factors Can Limit Marketing Success
The first half of my career I spent in product management and development, including Chief Technology Officer and head of manufacturing. The second half of my career I’ve been a marketer, most recently Chief Marketing Officer.
I’ve seen first-hand how the charter of marketing (to continue to bring in new leads and sources of revenue) can be limited by factors outside the marketing team’s control. A marketing initiative, channel, or campaign will hit a ‘success ceiling’ and the marketing team may not even realize the cause, or even that it’s happening. Yet they continue to spend the budget they allocated.
It is a limit of scale. That is, the methods and programs that are generating leads and opportunities hit the limits of what is possible for those methods. One example is paid social media ads. It’s possible to ‘run out’ of a specific targeted audience and over-saturate that limited audience, with little to no return.
A second example is events and trade shows. In a given industry or segment, the number of people who will attend is limited, and they often will attend the same three or four events so you end up gaining repeat exposure to the same people. That may be worthwhile for an early stage startup trying to gain awareness, but may not be a great investment of marketing funds for mature companies looking for new prospects.
In B2B marketing, prospect audiences may be so limited in a given channel or medium that spending too much money can actually work against you. This can happen with AdWords, for example. You end up bidding against yourself, and driving up the cost of your own ads because of your own inadvertent (over) spending.
Ultimately, marketers need to be aware that the programs and tactics they are implementing will not be perfect and could actually have limits and become less effective and more expensive than originally planned.
So What Can a Marketer Do?
In short, set aside discretionary funds. Think of it as “Marketing R&D”. Other departments in the company have R&D budgets, even if they aren’t called that. Consider:
- Entering a new market or region requires market research.
- Correcting an unforeseen problem with an existing product requires the unexpected allocation of resources.
- Materials research for a manufactured product requires investigation.
- Trying new techniques or technologies requires understanding upstream and downstream ramifications.
- In the software development business, funds need to be allocated for security testing, meeting new regulatory requirements, etc.
- Meeting the feature and functionality needs of a potential big new client could be an unexpected and unbudgeted expense.
So Why Not Marketing R&D?
Change happens throughout the company and the markets into which it sells. All too often, marketing is asked to support changes in the company, without commensurate increases in marketing budget. For example, a merger and acquisition requires resources for re-branding the acquired company and its products, as well as communications and PR. These things don’t just happen. There is an associated cost, and having a ‘discretionary’ pot of money can cover these costs without negatively impacting other marketing initiatives that bring new business into the company.
But more importantly, and what I believe to be the true value of a Marketing R&D budget, is that it empowers marketing to try new things: to discover what you don’t know, and find new ways to reach out and build new audiences and new lead pipeline. It can also reduce the time required to close those deals.
To fish where the fish are, you need to find the fish. Start small. Find proof. Spend more. Some people call this Agile Marketing.
It’s far more sophisticated than casting things out to see what works. Essentially, though, it is running a small test of a new tactic and measuring the outcomes, adjusting based on what you learn, and trying again. Think of it as informed experimentation. A fisherman trying a new bait or lure. Did you get a nibble or a bite? Try more of that. Cast there again. Every team should apply agile tactics without letting these tactics detract or drain resources away from the ‘rainmakers.’ Hence, my advocacy for allocating Marketing R&D budget.
Great Idea, But Will It Pass Muster With the Finance Team?
Chances are, most company leaders including those in Finance will have never heard of the concept of Marketing R&D.
Have a frank conversation with your head of finance. Share the concerns raised in this article, using examples from your own organization of where your marketing has succeeded and where it’s had limited success. Tell them trying new things requires budgeting for new things.
Then ask for 15 to 20 percent of next year's marketing budget to be designated as R&D.
Explain that they should expect R&D dollars to have a zero percent return on investment. They may as well take that money to the parking lot and light it on fire.
There can be no guarantee because you plan to use the funds for experimenting, or responding to surprises in the company. The range of potential return will be so broad or so widely banded as to be ineffective for their purposes in forecasting.
In my experience, however, there is seldom truly zero return. R&D funds for agile marketing may not net the company 100% return, but there will be intangible learnings and conversations about effectiveness that come out of the experiments, and these can be used as data points and evidence for developing new approaches that will get tangible results. Further, some new tactics take time and a lengthy process to come to full fruition. Account-Based Marketing (ABM) is one example. But you can’t achieve success without taking the baby steps of trying something new in the first place.
Economic decay in current marketing programs is inevitable, and results will chart like the profile of a wave: lots of peaks and valleys. Companies that pursue growth always look to the future, however, and being agile in your marketing and setting aside some R&D budget to pursue agile tactics improves your chances for being ready for the future and filling that stringer with fish.