The battle for budget dollars is heating up as Q1 begins. While many companies have locked down on their 2018 budgets, many have not. A surprising 3 in 5 companies will not have a finalized budget until the end of Q1. This means budget dollars are in flux and executives everywhere are engaged in the annual hyper-active horse trading that takes place to get what they need.
To prepare for a solid interaction with your CEO about the marketing budget, download the 20 CMO Budget Validation Questions checklist.
Marketing is typically the most underfunded, and in some cases starved, function within a B2B company. Unlike other functional leaders, CMOs struggle to show a return on invested capital (ROIC). This is true even though they have more tools and analytics than ever before. For most CMOs, it’s not a lack of tools that get in the way of demonstrating ROI or ROIC. Instead it boils down to sharpening their budgeting capabilities.
A recent study found that nearly two thirds of all CMOs still attempt to create and present budgets based entirely on qualitative inputs. “It feels right”, “everyone else is doing it”, and, “we just know” are a few of the comments spoken in board rooms as CMOs work to justify their budget requests. Of course, these meetings most always include two Chief Financial Officers, the current CFO, and the CEO, who 70% of the time was a former CFO. These personas operate with different challenges, objections, goals, and priorities than the CMO. For a CMO to be effective in securing his or her budget dollars, they must understand what’s important to their boss. Additionally, we strongly recommend the CMO establish a meaningful relationship with their CFO partner. Once crated, this serves as a force multiplier with the CEO.
Here are 5 ways a CMO can improve his/her relationship with the CEO to produce better outcomes:
- Increase your financial acumen. CEOs are constantly faced with balancing short-term requirements and long term strategic initiatives. In fact, part of that balancing act includes decisions for how to effectively allocate people, money, and time. Top line targets, EBITDA, valuation, and managing board expectations all fill your CEOs thoughts, day and night. Becoming familiar with key financial metrics – those specifically important to your company – will earn your CEOs confidence. Many companies are moving to measure Return on Invested Capital even more so than EBITDA. Get up to speed. There are countless books published on valuation that can provide a foundation level understanding and allow you to engage your CEO at a different level. YouTube has become a wealth of educational content. Hundreds of videos exist that offer an efficient way to increase one’s financial acumen.
- Establish a strong relationship with the CFO. This is accomplished in two ways. First, by knowing today’s budget numbers at a line item level. Second, by being willing to show some vulnerability relative to your level of financial acumen. Many CFOs believe they are already spending too much to fund Marketing and Sales. CFOs are unclear, if not completely blind to what return the current marketing budget is producing. Most CMOs struggle to provide clarity around what each line item of the marketing budget is producing, or accomplishing. Some line items may not provide a direct line to a dollar of revenue. However, the CMO’s job is to provide a clear picture of exactly what that budget spend is accomplishing. Recently I sat through a budget meeting run by a CFO that included the Marketing and Sales leaders. When the discussion came around to Marketing it was clear that this CMO didn’t understand what he was getting in return for the money being spent. The CFO asked what they were getting from a high-priced agency partner. The CMO responded that he would check with one of his direct reports to get the specifics and report back thereafter. CMO’s must know their budgets inside and out as if it were their own money. Line items – especially those that make up 10% or more of the total budget – should be on the tip of the CMOs tongue. He should be ready to discuss these items in intimate detail. What it is, what the company is getting in return (leads, revenue, content, ads, media support, etc.). Raising the level of budget awareness will increase the CFOs confidence and trust in the CMO. Finally, most CFOs are waiting for their teammates to ask for help. When looking at companies producing high growth results, you’ll often find strong relationships between the CMO and CFO. They work together to understand one another and help each other fill in the gaps. CMOs are not financial engineers, and most CFOs don’t understand sales and marketing. Those duos that work together rock the performance charts.
- Provide details on the return or outcome of current spend. Assume your current Marketing budget contains some or all of the following line items: branding, campaigns, content creation, PR, search engine marketing/optimization, agency/vendors, digital, memberships, events, marketing application software licenses, and headcount. A CMO should be able to answer questions including, how many pieces of content did we get for what we spent? How many campaigns were run and what was the response rate? Were we able to get to a detailed funnel level for each campaign that shows marketing captured leads, marketing qualified leads, sales qualified leads, sales accepted leads, etc.? If so, what were the results at each funnel level? If not, what’s the plan to get to this level of granularity? What did we get from SEO/SEM activity? What’s the overall cost of generating a lead? Which sources produce better converting leads? What did we get from attending all those trade shows? The more specific the CMO can be, presenting facts and data rather than shooting from the hip, will help increase the CEO’s confidence.
- Provide insight into how assumptions were established. There are times when hard data simply isn’t available. Whether the CMO is tasked with driving the launch of a new product, or forming a Customer Advisory Council, there are times when providing an accurate return or result will be difficult. However, it’s incumbent upon the CMO to find benchmarks as they enter new Marketing territories. From Google, to third party benchmarking firms, there is a high availability of data and benchmarks that CMOs can use to provide the justification baseline for new spending requests. As an example, maybe there is an industry event the CMO believes is worth attending. The cost $5,000 for the booth, and another $10,000 to staff the booth with sales people for a 2-day event (purely the travel expense). In presenting a case for funding, the CMO should provide the CFO with insight into who attends this event, how many of the company’s buying personas are attending over these two days, how the company plans to announce its presence at the event, the number of meetings the Sales team has a goal to conduct while at the event, a conversion rate of meetings to opportunities, and further, a conversion rate of opportunities to sale. Presenting benchmarks using industry data will help get the CEO comfortable with making the decision to fund or not fund. Remember, the CEO’s primary concern is to generate a positive return on capital invested. By allocating $15,000 to this event, he or she is making a conscious decision to forgo another alternative deployment of capital.
- Socialize the plan across the entire executive team. Whether you’re selling internally or externally, most buying decisions are made by teams. In fact, it’s quite typical that between 5 – 6 people are involved in making a decision to spend or not to spend. The most successful CMOs work tirelessly to form strong relationships with their peers. When the horse-trading begins, people are more likely to give something up if they believe they will get something better in return. If the CMO has created a compelling case to spend dollars on a campaign that will generate a high volume of low cost leads, that convert at a higher than typical win rate, it’s likely the Chief Sales Officer will have a vested interest in seeing this campaign funded. The concept of “strength in numbers” is critical during the budget season, as well as farther into the year when making out of budget requests. A best practice is for CMOs (as well as other members of the executive leadership team) to prewire their teammates with their budgets prior to getting to the budget table. Secrecy and control should be jettisoned in favor of transparency and agility. The faster the CMO can socialize the plan, gather feedback, and work to address questions and concerns the greater the probability he or she will secure the funding requested.
Before meeting with your CEO, prepare for a solid interaction about the marketing budget. Download the 20 CMO Budget Validation Questions checklist.