I am an investor in a small business that I believe in strongly. If I didn’t believe in it, I wouldn’t have invested — and I wouldn’t spend far more time than I ever thought necessary working with them to help them grow.
The founders are smart people. Very technically savvy, and good marketers, too. But I wish they’d take a few gardening lessons.
That’s because if you want to grow a start-up business, you need to learn how to grow money. We all know it doesn’t grow on trees, but some entrepreneurs seem to think that it does grow on Kickstarter, Sand Hill Road, and at the various angel groups scattered around the country.
I’m very much in favor of start-up companies raising money through angel investors, friends and family investments, and venture capital. One of the hottest companies around — Broomstick Productions, the creators of the amazing Heckerty interactive stories for children — raised its first round on Kickstarter, which made me a fan of crowd-funding, too. (Anything that brings something as enchanting and magical as Heckerty to life is fine by me!)
But I’m even more in favor of entrepreneurs who know how to grow money the old-fashioned way, by selling products and services, and reinvesting in the business. Marketers, too, need to know how to manage their marketing budgets. Yet I continue to hear young marketers say things like, “My boss just doesn’t understand that you have to spend money to make money” or “My budget is just too small — I can’t get the results they want on this budget!” or my favorite, “Well, if they’d just approved the budget I submitted, things would have been different.”
Of course, it’s true that you do have to spend money on marketing, public relations, social media, content marketing, email marketing, advertising, SEO, and all the other tools that develop and nurture prospective customers and create sales. But often, the budgets that I see marketers complaining about are more than sufficient to get the job done. So here’s my take on the finance lessons I wish more marketers (and entrepreneurs) would learn.
Money Mistakes Marketers Make
The #1 money mistake marketers make is spending it at the wrong time. Either they wait too late, because they don’t understand the buying cycle, or they spend money at a time when their customers simply aren’t interested in their products or services.
That’s the problem with the company I mentioned earlier. Theirs is a highly seasonable business, where 90% of the company’s revenue comes in two quarters of the year. They wanted to try to spread the income out by showing customers the benefits of their services during “off-peak” months. That’s a good strategy — but they decided to rely on organic search, SEO, and PPC ads to reach those customers.
That’s a bad strategy. People don’t conduct searches for products they don’t think they need. If you want to convince people that they need your product during the “off-season”, you need public relations, content marketing, and old-fashioned advertising to educate them about the reasons why. You can’t count on search marketing, because the volume of searches is seasonal, too.
Another finance lesson that some marketers need to learn is that just because it appears on a spreadsheet, it isn’t necessarily correct. Consider these results from a survey published by Ventana Research:
- 4 of 10 survey respondents found out-of-date information in spreads “frequently” or “all of the time”.
- 50% of survey respondents said errors in numbers and formulas are common even in their most important spreadsheets
- 50% said that it is common for them to have multiple versions of the same spreadsheet
Add to that the fact that many marketers majored in marketing, PR, journalism, or advertising specifically so they wouldn’t have to master even the most basic math, and you have to wonder why budget spreadsheets are the holy grail of marketing budgets. I’ve seen some truly amazing budget spreadsheets in my time: massive budgeting plans with multiple tabs and an unwieldy number of columns.
Usually created by one person who professes to understand all of the details and nuances, these giant time-sinks generally leave everyone else wildly confused. Countless spreadsheets create version-control problems, and don’t offer the integration, visibility, or control needed to track returns and justify spending.
There’s a simple solution: collaboration. If the marketing department (CMO, marketing manager, VP/Marketing) worked with the finance department (CFO, accounting manager) to create a single budget plan in which each team member brings their own strengths, the result is much less time wasted on spreadsheets, calculations, and tedious manual tasks.
Five Common Marketing Budget Mistakes
1. Planning based on last year’s budget
How many times has this happened? You’re in the middle of a campaign, on the road attending events, and managing a huge list of projects when you get a reminder notice from the boss that next year’s budget is due. So you rush through the planning process by tweaking last year’s budget instead of starting with new goals for the new year.
A better way would be to answer the question, “What do we need to achieve with our marketing dollars next year?” There should be two answers – one from the corporate viewpoint, and one from a strategic marketing view. The corporate viewpoint is likely to be very specific – increase sales by X%, support expansion into a new territory, generate a specific number of leads each month – while the marketing viewpoint is likely to focus more on methods.
A marketing budget should deal with how money is to be spent, not how much money is to be spent. That may sound like a small difference, but it’s not. Tweaking last year’s bucket tends to start from the assumption that spending needs to be divided into the same marketing programs (often dubbed “buckets”) next year – and that may not be true.
Budget planning, if done right, is a great tool to identify spending you can do without, and set new priorities to spend on things that matter, so don’t pass on the chance to do that in the name of meeting a deadline.
2. Keeping Budget Details Secret
Awhile back, I was asked by the CMO at a very large global technology company to help him overhaul his budget. The first thing he said was, “I need you to talk to the line managers and find out what they think about spending – to gather the data for next year’s budget. But you absolutely cannot tell them what’s in the budget. It’s highly confidential.”
OK, I get that some parts of his budget are confidential, especially those dealing with salaries, incentives, and bonuses. But he actually meant that the line managers responsible for spending the budget weren’t allowed to see the overall budget, not even their own annual budget. Instead they were each told how much could be spent on specific projects, and the rest of the budget was hidden under a tight veil of secrecy.
C’mon. How does he expect his talented managers to do their best work if the budget framework and overall strategic plan is a secret? Even if each of them does great work on his or her individual piece of the puzzle, overall results would be better if the whole marketing organization understood the big vision, and how their piece of the puzzle fits into the overall goal and budget.
A marketing budget is a living document, that flows from the day-to-day execution of the marketing plan. That means it should be part of the day-to-day operations of the team, so people have visibility into their parts of the plan and budget.
3. Understanding ROI & Monitoring Spending
One of the reasons that sharing the budget – and keeping it constantly updated instead of archiving it the minute it’s finished – is such a bad mistake is that when you lack reliable data you need, it’s impossible to match actual expenses with the success (or failure) of marketing programs running in real time.
That’s a good way to give top management a large stick to beat you with, and puts any marketer in the position of constantly having to justifying spending and secure additional funds as they’re needed.
You can’t expect management to offer you a blank check if they don’t understand what you’ve spent to date, and how that spending has contributed to the company’s sales, growth, or goals. You have to know where you stand against the plan and the forecast so that you can adjust spending to stay on track with overall company goals.
When I talk to CEO’s and COO’s, many of them fault their marketing team as being unable to manage a budget. This seems true in four or five person start-up companies and giant multi-national companies. If you’ve run into this complaint, then it’s time to pay better attention to your plan, and communicate it better to the entire team. This means communicating it to the marketing team – consultants, agencies, and freelancers included – and to sales, management, operations, and finance.
4. Forecasting Failure
One of the more astonishing statements I’ve heard recently came from the newly minted CMO at a large national services firm. When I asked her about her forecast, she replied, “Oh, that’s for the sales department. I don’t worry about that.” Yikes!
This smart woman has multiple degrees (marketing, law, and an MBA), good experience, and a great track record. But she couldn’t even accurately forecast her future marketing spending, and had no idea how her marketing activities were being judged by finance, sales, and top management. This feeds into a perception that the marketing department is divorced from business reality, and makes it harder for her to get her budgets approved.
Once I showed her how to tie invoices and purchase orders together with marketing programs (through a job number system, so that spending is linked to concrete programs), she was better able to forecast spending, and quickly began building credibility with the finance department and top management.
A key part of forecasting is planning a budget that delivers a specific return on investment (ROI, or marketing return on investment – MROI). Proving ROI is critical to illustrating the value of marketing’s contribution to the organization, and there’s a growing pressure in companies of every size to provide monthly or even weekly ROI reports.
Part of the focus on ROI is the common belief that the data to prove ROI is at everyone’s fingertips these days. (It isn’t, actually, but that’s a different story.) Pulling together the costs and data for ROI analysis can be a time-consuming and manual process, especially when the information is spread across systems, people, and spreadsheets.
Forecasting – that is planning spending by specific goal – can make it easier to demonstrate ROI throughout the year. So when setting up the marketing budget, be as specific as possible on how the spending will achieve a specific goal, and include the analytics or measurement criteria that will measure progress.
For example, if one of the goals is to increase sales by 10% by spending a specific sum on advertising and email marketing, take the extra step of creating a reporting mechanism that will track sales as dollars are spent. If you’ve spent 50% of your budget…and sales aren’t up 5%, are you still on track, or do you need to adjust spending towards an area that’s delivering better results?
5. Adapt and Change
Go ahead and admit it: no marketing plan is perfect. No matter how hard you work, no budget or spending plan is going to survive for a full year without needing to be changed and updated.
I find that building in the key performance indicators (KPI’s) and milestones when I plan my budget make it easier to adjust my spending and adapt to market changes as time goes on. For instance, I like to know exactly what I’ve spent to date, and exactly what results have been, on each of the marketing activities in my budget. That way, I can move money to the programs that work – and stop investing in tactics that aren’t working.
This doesn’t mean expecting immediate results from every marketing activity. Public relations and social media, for example, can take time to yield results, and so can other types of marketing. But I need to see movement in the KPI’s assigned to each budget category. If I don’t, then I need to change my spending habits sooner rather than later.
One lesson I learned the hard way is that my job as a senior marketer isn’t to manage my budget, it’s to manage my resources to achieve results. The budget is just one of the tools I have to work with. How I spend it can change as I identify patterns and market forces. I’d rather finish the year with great results than a budget spent exactly as planned. Hadn’t you?