Here’s Why Zero-Based Budgeting Is Breaking Marketing

Zero-based budgeting is all the rave in marketing, but what’s the right way to go about implementing the strategy for your brand? In this episode of Marketing is Broken, we look at what to avoid and what to make sure you get right when it comes to zero-based budgeting for marketing.
09/28/2018

Welcome to Marketing Is Broken, where we obsess about what’s wrong with marketing like a cat with a laser pointer. Let’s check out this week’s top story!

Marketers have largely failed to modernize their approach to budgeting. In a recent article by some of the folks at McKinsey & Company, they state that “few companies have fundamentally changed how they measure and assess marketing’s impact.”

While most companies still use an approach called cost-plus budgeting where you simply budget for a percentage more or less of what you spent the previous quarter, the global consulting firm advocates an approach called zero-based budgeting. This model forces marketers to regularly rebuild their budgets from the ground up and justify their spends each quarter or year, depending on the company.  

While zero-based budgeting is truly an amazing way to control costs and to keep companies focused on the functions that generate revenue, it can also do a lot of damage when marketers misapply its principles along the way.

That brings us to this week’s topic: Zero-based budgeting in marketing.

According to the U.S. Small Business Administration, startups and brands in competitive markets can expect to spend as much as 20 or even 40% of gross annual revenue on marketing and advertising.

That’s a heap of cash. And we marketers don’t always seem to have the best judgement when it comes to spending it.

Marketing is hard work and even the marketers behind the best brands can screw up royally. Take Dove, for example.

Dove is a Unilever brand. Keith Weed is the CMO of Unilever. He’s generally considered to be one of the top minds in marketing due in part simply to the shear amount of money he spends selling all that soap.

But even Keith’s team makes mistakes.

Dove is best-remembered for their Real Beauty campaign from the early two thousand oughts and are often touted as one of the best champions for empowering women of all shapes and sizes through their advertising.

Then in 2017, for some reason, they launched this racist Facebook ad.

Just imagine. Someone had to concept that ad. Someone had to shoot it. Someone approved it and gave it to another person who then went and put it on Facebook. And then spent even more of poor Keith Weed’s hard-earned money to make sure that a bunch of women would see it and get really upset.

With a high-stakes job that can often make or break companies, it’s no wonder why the CMO is the C-Suite executive with the lowest average tenure among the nation’s top companies.

And it’s also no wonder that CEOs are enforcing the change to zero-based budgeting.

Leadership wants to see that our marketing strategies are directly tied to the overall company strategy and objectives, which represents a huge opportunity.

And that’s where you can help fix marketing.

While some marketers are fumbling with zero-based budgeting and even more still resisting it altogether, what should future-thinking marketers do to embrace this trend and use it to their advantage?

For that, we turn to another global consulting leader, Accenture. They claim that they have mastered the fifty-year-old concept of zero-based budgeting with their ZBx Management Model, which based on a few important principles.

First, Accenture says to be who you aspire to be. Build your marketing budgets based on the company’s strategy. If your plan is to be the number one brand in a billion dollar space, you better figure out a way to start spending money in a way that is both efficient and wide-spread.

Second, Design from the outside in. Each project you choose to fund should be in the name of improving a specific aspect of the brand experience for the customer. Avoid tactics that aren’t informed by voice of customer and always think of marketing as a way to foster the refinement of what your brand actually does for customers.

Third, Build it so they come. Invest in automation, scale, standardization, and building internal competencies around the marketing strategies that prove valuable over time and abandon what doesn’t or won’t work.

Those are all amazing pieces of advice and I’d add one tip of my own to help you get the most out of zero-based budgeting: don’t sell your marketing plan short.

Many zero-based budgets start with a spreadsheet of advertising campaigns that meet the company’s threshold for cost-per acquisition. A 3:1 customer lifetime value to acquisition cost ratio, for example, is very popular in startup culture. Direct response campaigns perform extremely well using this benchmark, but marketing campaigns that are earlier in the consumer journey often fail to live up to the same standard.

Accenture and McKinsey both suggest that marketers fully consider the costs and benefits of their marketing efforts. As a marketer, that means evaluating campaigns at a level that includes both the cost it takes to build awareness among an audience and the cost it takes to create a direct response. You can’t just justify ad spend based on the campaigns that drive direct conversions.

Get these zero-based budgeting principles for marketing right and you’ll get the reputation for being a good steward of the company’s budget and a marketing leader more-than-worthy of your shorter-than-average C-Suite tenure.

And that’s how you can fix marketing. We’ll see you next time.

Author: Josh Braaten

CEO - Brandish Insights

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