As companies navigate economic uncertainty, marketing budgets are frequently the first to be slashed -- a short-sighted approach that can undermine both immediate sales and long-term brand equity. However, rethinking the way marketing expenditures are framed and allocated can make a significant difference, transforming them from dispensable costs to essential investments that drive sustained growth. Inspired by Mats Georgson thought-provoking work, here’s a roadmap for building a resilient, strategic marketing budget that resonates with both marketing and finance teams.
Building Budgets That Start with Strategy
Any effective marketing budget must be rooted in a clear strategic vision. Instead of merely carrying forward last year’s budget, start by defining where your company wants to be in three years, and determine the metrics required to get there. This future-oriented mindset anchors the budget in meaningful objectives, avoiding the trap of viewing marketing as a narrow, ad-centric endeavor.
The prevailing misconception that marketing equals advertising limits its perceived value and makes it a target for cutbacks. But marketing is much more: it encompasses market research, product pricing, distribution, and promotional strategy. If stakeholders continue to see it as solely about advertising, they’ll never appreciate its potential as a driver of growth. A well-defined strategy broadens their understanding and builds a foundation for a budget that can survive in both prosperous and challenging times.
Reframe Marketing Costs as Product Investments
One way to secure the marketing budget is by reframing certain costs as Cost of Goods Sold (COGS), aligning them with the direct costs associated with producing and delivering products. This reallocation grounds marketing within the product itself, making it more defensible in times of cost-cutting.
For instance, consider the luxurious packaging of a Chanel perfume bottle. Far from being an expendable marketing cost, the packaging is an integral part of the product's appeal and customer experience. By positioning this as a COGS expense, it is less likely to be reduced during financial tightening, as it directly impacts sales. This approach places marketing closer to the core product value, cementing its essential role in the brand’s identity and sales appeal.
Position Marketing as an Investment, Not Just a Cost
Georgsson emphasizes that parts of the marketing budget can be treated as capital investments, paving the way for a long-term view of marketing expenditures. According to Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), certain marketing costs can be capitalized and amortized over several years rather than being treated as immediate expenses. This shift is especially relevant for activities that build long-term brand value, such as CRM systems, market research, and even certain types of advertising that are expected to yield benefits beyond the current fiscal year.
Reframing these expenditures as investments offers three major advantages:
- Positions marketing as a long-term growth driver: Capitalized costs underscore the role of marketing in fostering future demand, rather than merely generating short-term returns.
- Facilitates budget increases: Capital expenditures can allow for larger budgets without affecting current profit targets, especially in companies pressured to show profit now while anticipating future growth.
- Reduces the risk of future budget cuts: By capitalizing certain marketing activities, these become fixed costs tied to long-term objectives, insulating them from the seasonal variability of expense budgets.
Choosing KPIs That Finance Teams Will Appreciate
To bolster marketing’s case, use key performance indicators (KPIs) that are not only meaningful to the marketing department but also resonate with finance teams:
- Branded Searches: Easily measurable across markets, branded searches are a straightforward way to track brand awareness and interest, showing the value of marketing initiatives in concrete terms.
- Consideration: This metric gauges consumer intent and engagement with the brand, though it requires more nuanced tracking across different markets.
- Share of Search (SoS): Particularly valuable for comparing competitive market share, SoS reflects a brand’s standing against competitors and is a strong indicator of brand health.
KPIs like these demonstrate marketing’s tangible impact on revenue and market position, making it easier for finance departments to view marketing expenditures as a wise investment.
Marketing as a Strategic Asset
By focusing on strategic KPIs and redefining parts of the marketing budget as investments, marketers can transform how their budgets are viewed across the organization. Following Georgsson’s approach, this reframing not only protects marketing from budget cuts but also secures its position as a vital component of the company’s growth engine. This budgeting strategy isn’t just about defending dollars; it’s about establishing marketing as a long-term asset that builds value, drives competitive advantage, and ensures sustainable growth.
Posted at MediaVillage through the Thought Leadership self-publishing platform.
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The opinions expressed here are the author's views and do not necessarily represent the views of MediaVillage.org/MyersBizNet.