The Corporate World Has Invented a 5th Season

It’s budget season. Yay! Said nobody, ever.

Businesses have been furiously planning for the next financial year, and it’s not an easy process. Especially when Hugo in finance has a heart colder than ice.

How do marketers know where to start? 2020 was a massive kick in the nuts, 2021 was a bit better and 2022 was starting to get back on track. So, what the gorblimey do you do for 2023?

Don’t panic, I have a three-point plan that will make it a hell of a lot easier. And here’s the Brucey bonus – it’s actually a four-point plan.

Here’s what’s pissed on marketers’ chips. They’ve simply lost their clout in the boardroom. Some are fighting their corner and arguing their case for a fatter budget. But in my experience, most have to just take what they’re given by the CFO.

Marketers alienate the C-suite with their arty jargon. Procurement, finance, R&D - they all speak the same language… P&L’s, cashflow, balance sheets. But not marketing chaps. No, they jibber jabber on in their own speech like a French exchange student.

Don’t be a clever dick.

You’ve got to know your business terminology. If you’ve got this far without being able to read a balance sheet or dissect a P&L, then you’re in the wrong game Malcolm.

Learn to speak the language. It’ll give you the credibility and the respect you deserve in the boardroom. 

Let’s move on to my three (four) point plan.

1. What are you trying to achieve?

We’re not talking about a bit of Tik Tok or rolling out a brand vision video. That Love Island bellend ain’t gonna light a fire to spark your revenue.

What do you want next year – to grow the market share? Grow the business as a whole? Expand into new territories? Maybe you just want to survive and hold onto your jobs.

Come up with a plan.

You can’t pull a number out of your arse. The C-suite’ll laugh you out of the boardroom and into Starbucks for a Barista job.

Don’t wait to be spoon-fed by the CFO. Understand their models, their assumptions and hypotheses about the business’ objectives.

Find out what those numbers mean! What does that mean for you as a marketing department?  

Russell Grant can’t help you predict the future. Marketing is a lot of forecast (guesswork). You’re better off betting on Nottingham Forest.

Dig in and learn the business. You’ll earn respect in the boardroom and be more likely to get what you want.

2. How much budget should a marketing team get their grubby mitts on?

Reliable pieces of work have clearly established what the total budget number should be. A lot of that work has been collated by Doctor Grace Kite at Magic Numbers, ARC database. It’s a collection of econometric researchers and data analysts, they’ve carried out studies independently, before coming together and amalgamating those findings as a sort of meta.

It’s a budgeting nirvana.

And ARC’s biggest findings? We should invest in a marketing budget that is between 5 and 10% of their total revenue. That gets the best return. 

Credit: Research from Magic Numbers. Illustrated by Dan White. 

Businesses that invest less than 5% are on the left-hand side - it dips away, and they receive less return on that investment; those that invest between 5 and 10% of the total budget for marketing are at the top of their game. And what about those that invest more I hear you say? They are on the right and dip away. 

So you can overinvest. Shocker. An adman telling brands they can overspend on advertising.

What’s the issue then?

Most brands don’t get anywhere near 5-10%. They’re forced to under-invest and have historically under-invested for years. Famous, successful brands will have invested between 5 and 10%. Year in, year out. It’s a done deal.

Can you ever be the exception and overspend? Yes, if:

• You’re a small brand and trying to really ramp up your excessive share of voice 

• You want to grow, have ridiculously clever creative ideas and want to go all out

• If you have super high margins.

But ultimately – you need to be in that 5-10%. And I know that’s scary. There aren’t many CFOs, who’ll give you 10% without asking you to kiss their pale, male and stale backsides.

Mark Ritson also puts the number at 10%. The research shows it’s between 5 and 10. And I haven’t seen any of our client grow on less than 5% of revenue.

If I put my feet into the shoes of a small professional service businesses like a solicitors, surveyors or accountants. Brown leather brogues, obvs. Their gross profit margin is typically 70%. When we say invest 10% of the £1m they’ve generated in sales, that’s £100k for the marketing. But their 70% is £700k in gross profit. It’s a big ask to invest £100k in one department, that’s 14% of the gross profit.

Let’s get into the Nike AirMax of a slightly bigger business. You’re a £10m FMCG brand. Selling to retailers, landed costs into supermarkets are often 50% of revenue. Of the remainder 50%, the retailer takes another 50% (25% of the retail price). So the gross profit margin is now 25% of that 10million – leaving just £2.5m. And that brand is being asked to invest 1milion into marketing. I get it, it’s another scary number for the CFO to approve.

But if you want to achieve your sales goals, you need to shake up the decision-making. 

But how to convince your CEO / CFO?

Actual truth, a quote in a study from the Fournaise Group:

"75% of CEOs think marketers misunderstand (and misuse) the “real business” definition of the words “Results”, “ROI” and “Performance” and do not adequately speak the language of the top management: these CEOs fail to understand why Marketers cannot zoom in on a few critical key business performance indicators to precisely measure, quantify and report on the level of customer demand they are asked to deliver."

So put your bean-counters hat on and have it out in the boardroom, otherwise, you don’t deserve to be there, and you definitely don’t deserve that 10% marketing budget.

And learn how to read a damn balance sheet.

3. How to spend your budget?

You’ve earned the coin, that 10% is burning a hole in your pocket. What to do with it?

Over the years, there are only two models and routes I’ve seen work. They take things in two sharp directions. I’m sure there’s a mélange of very complicated models provided by McKinsey, or some other bureaucrat. But I’ve only seen two that are effective. Others give wishy-washy instructions, a bit of this, a bit of that, no real strategic planning – and invariably fail.

You need to apply a framework for a year and use that as your planning tool. 

My first winner:

3.1/ Zero-based budgeting. 

Developed by Peter Pyhrr and Simon Broadbent a long time ago, it was famously adopted by Unilever in 2016. 

People tend to bitch about its concept; agencies tend to totally freak out as they just think about losing their juicy retainer. Their logic; when clients start from zero then their wastefulness will be exposed. I get it.

But that’s the exact opposite of what it’s trying to do.

It’s starting from scratch, it’s having a plan, it’s debating what will work.

Maximise the most effective channel for your business. Use econometric modelling, media planning and creative strategy to build a marketing plan starting from zero.

That doesn’t mean saying “I like brand vision videos, so let’s do one in March, and I hear TikTok is great, and ooh get that social influencer to sell it…”

It doesn’t matter about the size of your business. If you’re tiny then your strategy is probably going to be online only. If you’re a big household name, then channels and tactics are going to vary.

But remember (shock horror coming from an advertising man) it’s not always about advertising. It can be PR, ambassadors, sponsorship, strategic partnerships, physical availability, price.

Don’t forget about the short and long term goals with advertising. Binet and Field’s research bangs on about the 60/40 split: 60% offline, and 40% online. Emphasis on AND. The long AND the short – not either/or. 

But not all industries of course are limited to 60:40. Binet and Field state:

For B2C it’s 62/38

For B2B it’s 46/54

For Banking it’s 80/20

For Retail it’s 64/36

For ol’ FMCG it’s 60/40

Factor in your split, your most effective channel, and you can use the levers of extra share of voice. If the objective of the year is to grow 5% of market share – then you need to increase the budget by 5%.

The discussions within zero-based budgeting will no doubt uncover some uncomfortable truths, but the brand… and the marketing budget will be better for it.

My Second winner: 

3.2/ The Weetabix 70/20/10 rule.

Gareth Turner, who was until very recently Head of Marketing at Weetabix, was speaking at one of our events earlier this year. I interviewed him and he referenced the 70/20/10 rule. 

This is more for larger brands, for those household names – like Weetabix. Other cereal brands are available. 

You split your budget into 70%, 20%, 10%.

70% is what’s worked for the last 10-20 years. For Weetabix it was tactics like in-store activation, on-pack promos, and big campaigns like ‘he’s had his Weetabix’.

10% is innovation, (or experimentation). For Weetabix it was ‘Beans on Bix’, and their partnership with the FA.

20% is then developing and building on the innovation that’s worked from last year. For Weetabix it was building on those partnerships.

This adds rigour and a long-term view to budgeting, especially for household name brands that need to outthink equally as cash-rich competitors.

Here’s your Brucey bonus. 

4. Return.

Learn what to measure.

Learn the differences between ROI , ROI of Channel, ROAS and return on marketing budget.

Do not confuse short-term and long-term.

Short term - measure CAC, be aware of removing customers that would have been customers regardless of short-term activation. Assess the merits of direct response. All of this stuff is dead-easy and most brands do a pretty good job with it.

Long term – the mistake that countless brand make, is they try to measure long-term in the same way as short. Because measuring immediate short-term success is dead easy. Think about the boardroom language. Instead measure through brand tracking, prompted and unprompted awareness, affinity versus competitors. 

Remember the language boardrooms speak. If you talk lofty brand-wank, they’ll cut your balls off and your budget. Especially in corporate world’s invested 5th season.

Want more of this rubbish? Every Tuesday at 9am (UK) I have a LinkedIn Live. Next Tuesday’s topic… WHY IS YOUR BRAND SIGNIFICANTLY INSIGNIFICANT? It’s 15mins long and you might just learn summat useful. Click to attend and see you next Tuesday.