Sharpen Your Pencils – It's Marketing Budget Season

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My research year started off with a sentiment survey of CMOs at large tech companies, 40 of whom in aggregate gave us an average 8% marketing budget increase outlook for the full year 2011. And then in July and August we "true up" this number by looking at actual spend to date, and then factor in the remainder-of-year budget visibility. With that in hand, our forecast now is just a 3.5% increase for 2011 (that's across about 100 of the very largest tech vendors).  And so the bloom came off the rose this year, again, and marketing budgeters are looking at the "do more with less" mantra…again.

Here are some thoughts and guidance actions as we go forward. Three areas are in focus:

  1. It is not fun to look at budget declines but they are a fact of life in business and in the marketing business especially. More importantly, I suggest you look at and monitor your "Marketing Budget Ratio" (MBR) which is the percentage of revenue that you spend on marketing (discretionary + fixed spend). In a nutshell, you want to try to keep your MBR fairly constant. Ramp it up with revenue increase and walk it down with revenue decreases, but try to avoid dramatic swings in either direction. In IDC's research of the best performers, outlined in our annual Marketing Performance Matrix, there is a clear correlation of those who are in our leadership quadrant with those that are able to avoid major whip-saw effects of their MBR. Unfortunately, it is getting harder to do this and the parallel trend between revenue and marketing budgets that was smooth and steady from 2003-2008 has been dramatically "broken" for 2009, 2010, and 2011.
  2. Lower-cost digital marketing execution does account for some of the decline in overall marketing budgets. The inroads of "all things digital" as a percentage of the whole marketing mix have been impressive. In 2009 this number was 12.6%. In 2010 it was 19.3%. And for 2011 it will be 26.4%. Within this digital mix, we are starting to see investments in social marketing make it on to the budget list with designated investments in infrastructure for social media platforms; monitoring tools; and outsourced agency spend.
  3. I encourage b-to-b marketers to think about redefining the footprint of marketing in your organization, and by extension the footprint and impact of the marketing budget. Think not about your 3% or 5% or 8% MBR that I referred to above. Think about the totality of marketing plus sales costs. For a large tech vendor, we calculate an average MBR of 2.1 % and a Sales Budget Ratio (SBR) of 8.5%, for a total of 10.6%. The best opportunity for marketing and sales productivity improvement continues to be at the intersection of these two functions. Activities at the intersection include sales enablement; lead generation and nurturing; and pipeline management issues. Each of these three has opportunities for large areas of budget and process re-examination and redeployment.
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