Budget Shifts Happen. How Can You Be Prepared?

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As marketing operation managers a big part of your role is defining and managing the budget for your marketing initiatives. Too often changes occur after the budget is in place that requires you to relook at how your marketing dollars are spent. TPG’s Revenue Marketing Coach, Pamela Muldoon, sat down with fellow RMC and Strategist Justin Yopp to get his insights on how to better prepare for the budgeting unexpected.

Pamela: What are some of the factors that would affect your marketing budget after the start of the year and into your first quarter?

Justin: when we think about marketing management and specifically budgetary management in-quarter, it’s really different from the planning process in that you’re looking at leading or real-time indicators, concurrent indicators, whereas the planning process often looks at performance indicators, you know, things that look backward. so when it comes to managing in-quarter, you know, it’s kind of like all bets are off. So people create these plans and then they go back to their departments, and I wouldn’t say the plan gets thrown out the window but it’s just the reality of life hits.

Market dynamics shift, performance in a certain area changes, somebody’s pet project needs to get funded. All of these can impact how much of the original resource allocation is available and also the timing around this. I think we all have had those experiences where people get their budget and you have some people who work in what we consider an agile fashion. They like to spread their commitments out so that they can look at performance and then adjust how they spend. Then there are others who, for fear of claw-backs or other changes to their budget make, like as many commitments as they possibly can in quarter one. So having those two competing philosophies on budget management definitely impacts budget management as a whole.

Pamela: You mentioned working in a more agile fashion when it comes to budgeting. How has agile marketing as a methodology affected the budgeting process?

Justin: The evolution of this really comes down to the digital shift, the digital transformation. If you think about even 10 years ago, about traditional advertising, print spots, traditional media purchasing, the focus was always on bulk, because that would give you the lower marginal rate per insertion. You would make these commitments long-term, for the whole year or at a minimum for a single quarter. It was all about stability in spend, efficiency, and how you use the dollars; maximizing reach that way. But with digital, because there’s generally not an advantage to large up-front purchases it gives marketers the opportunity to buy more in real-time. Therefore learn in real-time and adjust the ads as they go forward, where they put their ads and just be more fluid with their investment. So when we think about those two worlds colliding is where we generally see the conflict between an agile approach versus a traditional buy-in-block approach.

Pamela: When there is a shift in the marketing budget, does when you shift your expenses in any given quarter make a difference? Are there some things we should consider in quarter one that, for example, vs. quarter three?

Justin: It depends on how it’s being shifted. Most organizations aren’t going to do a shift, say, across program categories, so they’re not going to say within a quarter, “Listen, we need to take from events and buy more digital.” That’s usually going to happen on a quarterly or half-year basis, but within a certain spend category. For example, I’m in social or digital spend and I need to determine how much am I going to put in display advertising, versus content syndication, versus third-party placements, versus social. This is generally happening on an ongoing basis but the biggest disruption is when you go across categories and then amplify that, say, across regions or specific geographies which are largely operating as almost separate BUs at that point. Within quarter we recommend it stays within your specific program category because there’s only so much disruption that the organization can actually take.

Pamela: Is it safe to assume that many marketing departments are not realizing how much they’re upsetting the apple cart per se, or how they could do mid-quarter budgeting smarter if they actually planned for change?

Justin: Let me tell you a story of how this impacted me personally. I was handed the digital budget to manage. It wasn’t a massive amount but it was not insignificant either. My mind state was “I’m going to be a good steward of this budget. I’m not going to commit it all right away. I’m going to run some experiments and find out where to invest, etc.” It came time to claw-back budget and literally, my budget was the only budget that hadn’t been fully committed. We’re at quarter one or something of the year. We’re in a place where we’re clawing back budgets because we’re not hitting targets and we’re concerned we’re not going to hit them at the end of the year. The only things that were remaining funded were large events that didn’t actually pay off, PR, things that just weren’t geared to drive demand. Because of the differing philosophies inherent in the department, and to some extent, the realities of managing different kinds of spend, the only place to claw back was from the place where you were going to actually drive results. So it was a very counter-productive approach to budget management. Whereas knowing that these claw-backs can always happen, if everybody had just reserved 5% of budget or we even had a contingency budget of five percent that was just held out there and wasn’t allocated, everybody could continue forward with their plans without it being too disruptive, and presumably drive the results the organization wants. But if you’re not counting on that happening, if you don’t plan for it to happen, then every time there’s a shift it is a disruption as opposed to a really good repositioning of the organization.

Pamela: So there seems to be a bit of a paradox here, right, of, “I need to put an emergency fund, 5% as you mentioned, for example, in place, yet if I don’t allocate all of my budgeting resources there is a chance I could lose that for next year.” How do you balance that challenge?

Justin: You’re completely right. There still is a “use it or lose it” mentality, which is sad. But in terms of how that’s got to change and what’s going to drive that is going to be a laser focus on impact as opposed to input. This is not going to be a fast change for any organization, even the ones most dedicated to seeing marketing drive revenue or other business results. Because it is a fundamental shift in the year-end planning paradigm, where instead of talking about how much you spent, you’re really just focusing on, “This is what we need you to contribute next year, this is historically what you’ve been able to do with it,” other dynamics that would necessitate either increasing or decreasing spend. And so again it would be more, I almost want to say “socialistic” in approach, that instead of it being a very competitive, “Hey, I want to get as many resources as I can, and show how much I can manage,” it would just be more like, “This is my focus area. I want to get the biggest result I can with the least amount of investment”. It would just be a paradigm shift in what the organization values. I don’t see that happening anytime soon for most organizations because there is some inherent competitiveness around managing the most resources, or having the biggest spend; if I can justify the biggest spend it means I am making the biggest impact, right? I think the politics of budgeting are still alive and well.

Pamela: If you have an in-budget shift change that happened this year, how can you prepare for next year?

Justin: Don’t put too much faith in what happened in the past to be predictive of what will happen in the future. It’s much more important to look ahead. Nobody’s going to be able to predict the future most certainly, but look ahead and say, “Is this likely to continue in the way that it has been?” If so, then maybe what you have is reasonable. But I would contend that it’s really important to look for those indicators or “what-if” planning. This is what we think is going to happen but what if something crazy really happened, like this new entrant comes in and completely obliterates the market with a new technology? What would we do? Doing some “what-if” catastrophe or scenario planning will help you get a better sense of what you would do should things go awry and therefore you’re proactively creating responses to market dynamics. That’s what I would say the really savvy marketers will do, as opposed to waiting for the changes to hit them over the head. There are so many good and bad examples of companies that either covered a competitive fact or didn’t and were lost out to sea so to speak.

Pamela: Any last thoughts or pearls of wisdom on preparing for in-quarter budgeting shifts?

Justin: It doesn’t have to be perfect. Just shifting to this idea of agility and the CMO making mandates like, “Listen, everybody, you can commit 80% of your allocated resources. The rest you cannot commit unless you make a really big business case,” which is a paradigm shift, right? As opposed to, “Hey, go get the best deals you possibly can”. The CMO is essentially saying we’re going to place a bigger value on agility over efficiency because we think that kind of responsiveness will ultimately yield us the performance we need. Start by engendering the culture, see how it works, recognize that you’re probably not going to break anything terribly. And that top-down mandate can start to reduce the political nature of everything. Secondly, for everything you’re doing as a marketing organization, make sure that it’s multi-channel so that every single initiative really is tying together and building on the promise of integrated marketing. Then your team is forced to work together regardless of the initiative, and in doing that you’ll, you will hopefully start to erode the barriers of, “This is my function,” or “These are my resources,” and just continue to help engender this idea that we all play an important, though different, part, in driving the whole organization forward.

Author: Pamela Muldoon

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