Every year since 2012, Gartner’s annual CMO Spend Survey has tracked marketing budget as a proportion of company revenue. Over recent years the story has been one of budget stability, with the average marketing budget hovering around the 11% mark. At the start of 2020 this budget stability was intact, with budgets across the nine major industries Gartner tracks in North America and Western Europe reporting average marketing budgets of 11% of total company revenue.
But the budget CMOs started 2020 with will not be the budget that they end with.
When we collected the data for this year’s survey in April and May, it was apparent that significant pressure was being applied to budgets. Forty-four percent of respondents stated that their budgets would be cut, with 11% facing substantial cuts of more than 15%.
Roll-forward just two months to the middle of July, and a poll of almost 300 marketing leaders found that, as the COVID-19 crisis continued to deeply impact marketing, the proportion of respondents expecting a budget cut of more than 5% grew to 59%. Disturbingly, the proportion expecting a significant cut of more than 15% had grown to almost a third of respondents. And 15% cuts are just the start data from Gartner polls of CFOs finds marketing firmly in focus for future cuts throughout 2020 and heading into 2021.
So far, so bleak. But, as the old idiom says, there’s no use crying over spilt milk, or lost budget. If your budget has already been cut, it’s important that you do all you can to protect against further cuts by justifying the value of marketing investments to the enterprise, and squeezing the most value from the remaining budget you have. In fact, even if your budget has not been cut, these are essential steps to take, minimizing the threat of potential future cuts and maximizing value.
This is the essence of marketing cost optimization. While the natural response to budget cuts may be to slice away at budget line items, Gartner recommends a programmatic approach, which looks at optimizing all elements across marketing’s operational mix: labor, agencies, technology and channels. To do this, CMOs need to answer three fundamental questions:
- How do I prove the value of the marketing investments I need to protect?
- How do I identify the costs I can afford to cut?
- How do I optimize marketing costs to drive greater ROI?
But where to start? Below are a few pointers to help kick-start your cost optimization program across the major areas of marketing spend.
Internal Resources and External Agencies
See how marketing’s capabilities align with strategic goals by mapping current state versus desired state capabilities as they span across your internal teams and external agencies and partners. Also map out external agency capabilities by identifying areas of discrete value, and areas of overlap with in-house resources. Drill down into the individual agencies’ scope of work by ensuring their projects support current marketing objectives. Use this review to discontinue underperforming programs and consolidate agencies where there’s overlap with other agencies or internal resources. Avoid the trap of using the raw measure of cost when assessing the value of agency contributions. Focus both on return on objectives as well as return on investment.
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Create a centralized catalog of currently deployed marketing technologies. This should provide an indication of how the martech stack supports the customers, marketing team, partners and overall business objectives such as growth or improved efficiency.
Deconstruct the marketing technology stack by revisiting the use cases and opportunities the technology was supposed to address when it was initially deployed. Establish what would happen if the marketing organization decommissioned the technology. Ask questions such as: What processes or programs would need to change if the technology is no longer in place? What data sources come from the marketing technology? Test the impact of cutting the marketing platform on a single product line or business unit.
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Map channel investments and execution against evolving customer journeys. Using tools like RCQ (reach, cost and quality) analysis to test the appropriateness of channel choices with journeys and responses. Use data and insights to rapidly test, monitor and tweak your tactics. Increase agility by moving to a weekly or biweekly media planning cycle.
Avoid the trap of focusing on conversion metrics to optimize performance across channels and journeys. Map response types to touchpoints, ensuring you capture and optimize to actions as well as intent and sentiment, as follows:
- Action: These are measurable interactions in response to marketing that can be tied directly to business outcomes.
- Engagement: These are measurable expressions of interest or consideration in response to marketing that can’t be tied directly to business outcomes.
- Perception: These are responses to marketing that can be measured indirectly, often through a survey or social listening.
Optimize for the Future
CMOs tend to only consider integrating cost optimization measures after they’ve been asked to reduce their budgets. Instead, CMOs need to think more like business leaders and keep the entire organization’s financials in mind. Focus your budgetary efforts on ROI and delivering clear business value and your operation will be better prepared to go unscathed during times of economic uncertainty.