How much do you need for marketing next year? Depends. How many customers do you want?
Budgets. Such an ugly word. So… constricting. There are multiple approaches to budget-building, but most are variations of either the top-down or bottom-up approach. As you begin your 2020 marketing plans, let’s talk about the differences, benefits, and downfalls of the two most common ways to budget for your marketing expenses.
When Should We Start at the Top? The Top-Down Marketing Budget.
In a top-down budgeting model, an executive team reviews data from prior years, sets revenue and profit goals for the upcoming year, and establishes target budgets to support those goals.
- Scenario Building. From a planning and forecasting point of view, a top-down approach provides the flexibility to model various scenarios. Forecasters can adjust the inputs to model variations in sales, support, marketing and operations.
- For enterprise-size organizations in a mature market, the top-down approach relies on industry benchmarks for performance, where marketing comprises an industry-standard percent of sales or revenue.
- Data-based projections. In mature markets, marketers should have historical data to be able to project an overall marketing budget based on an average CPA and customer growth targets.
- Budget alignment. In the top down model, each budget is aligned to the overall strategic and financial goals in appropriate proportion.
The underlying premise is that the market will behave largely the same and that a similar marketing approach will drive similar sales results – possibly ignoring market or technology shifts, new competitors or changing strategy. Additionally, a top-down budget doesn’t invite buy-in from department managers, opening the door to defeatism or excuse-making. “We could have been more successful, if only we’d had a say in the budget.”
When Is Blue Sky Better? The Bottom-Up Marketing Budget.
In a bottom-up budget scenario, each department starts with a blank budget and blue sky. Marketers know their target audience and their target growth goals. Campaigns are planned. Expenses and results are estimated by line item, and a final budget number is produced. Sounds perfect, right? The marketers have a clear strategy, marketing calendar and tactics, and they have bought into the plan and have accountability for the results.
The disadvantages to a bottom-up approach are most visible when each department’s budget is brought together.
- Siloed Planning. At some point in the planning, all of the budgets need to be aligned. If the sales team is expecting explosive growth, but the marketing team has planned for flat growth, the sales team will miss target. Likewise, support staffing will be built on sales projections. If any of the pillars are misaligned, your forecast and planning will be off accordingly.
- Budget Creep. Budgets built from bottom-up tend to be more conservative. Assumptions are moderated. Estimated results are lowered. Expenses are slightly inflated. As each department presents its own slightly larger budget, the overall budget increases exponentially.
So, what’s the answer? In most cases, the size of your business will dictate the level of flexibility you have in the budgeting process. Even in top-down environments, though, the bottom-up approach can be useful. As tactics are refined or removed to align to the top-down target, the bottom-up approach provides immediate insight into the impact of the marketing results.
Not sure where to start? The following resources should give you a great starting point for goals, data structure, and marketing plans in 2020:
About CRM and Marketing Planning: https://emfluence.com/blog/using-crm-prove-worth-marketer
Details on Top Down versus Bottom Up in Pictures: https://www.assetworks.com/resource-items/procurement-top-down-vs-bottom-up-infographic/
Applying Data to the Budget Discussion: https://emfluence.com/blog/using-your-data-to-build-a-better-marketing-plan
KPIs That Matter in Marketing: https://emfluence.com/blog/how-define-kpis-that-measure-success