In my 1st job in Marketing, I ‘managed’ a marketing budget of less than €5.000 a month (mainly paid acquisition spend), eventually growing it to about €20.000 a month. A few jobs later, my budget responsibility has grown significantly, while now responsible for a yearly eight-digit figure ($)💸. This creates a need for more accuracy, accountability, and diligence into what you’re spending resources on and the return on investments.
Operating Expenses versus Compensation versus Other
Often you’ll roll into a role or organization that already has a set strategy and aligned budget plan. The same applied to my role at RVshare, which I joined almost four years ago. It’s rarely the case that you get to build a budget out from $0/scratch. Instead, I joined on a budget plan that already had some essential buckets (that we remain to invest in). This often also predetermines the organization’s path and how a budget will be divided in the short term.
- Operating Expenses/OpEx: All expenses tied to regular marketing activities, campaigns, and the operations of the business. I can’t describe it better than Investopedia does here.
- Capital Expenses/CapEx: For most businesses or functions, there is a more strong capital element for investments that they’re making. As we’re a very asset-light business, we don’t own any inventory and don’t have any actual physical marketing assets (at least not to make a dent in a budget plan). This is not a thing for us. And probably with us many other marketing organizations.
- Compensation: Salary, Bonuses, etc. Basically what you get paid every two weeks.
Direct Return versus Non-Direct versus Supporting
There is no one right way to set up a budget plan, as it can be divided in many ways. Our Marketing one contains three big buckets:
- Direct Return: Channels that directly can drive a return on investment and can be measured on this basis. Examples of that are Paid Acquisition, SEO, and Marketing Partnerships. It doesn’t have to be a scientific method, but you can predict your spend > revenue pretty well often.
- Non-Direct Return: Other channels, for example, more focused on driving awareness or reach like PR, Social Media (Organic) and Brand Marketing.
- Supporting: Marketing Analytics, Technology, Education, Consultants, etc.
Categories like travel, meals/entertainment, and education are not directly coming out of our marketing budget. But it is realistically also a tiny allocation of a total multi-million dollar budget (considering we have a relatively small team, we do invest in them, don’t worry). Which doesn’t mean that it’s low in itself as you always want to make business travel possible, as well as training & education.
Internal versus External
On ‘who’ do you spend your resources, and how is the decision made. In most cases, this is not a finance/budget-driven decision, in my opinion. As it’s mainly tied to what functional/strategic expertise you need to make an impact in a specific area. Before a year’s start (financial years exist for a reason), we plan out our expected spend on internal versus external resources. At that point, we often already have an idea of what we’d like to add headcount for and what might be better to hire external support for.
→ Also read, Deciding between who to hire: an Agency versus a Contractor versus Hiring?
Misconceptions
Unlimited Resources
The narrative around this is often that you always need to scale. It applies to most startups, and overall I’m a fan of it. But it’s not realistic later on. A business with 90% of its marketing expenses is not healthy at scale. Scaling an unlimited budget might work well for you, but at some point, Finance will start knocking on your door as you’re ruining their cash flow positions.
Unplanned Costs
“A good leader can plan for any type of cost well ahead” – Nobody said ever. New ideas and costs always come up; I’m a firm believer in making sure that you keep a flexible mind and can adjust plans. For example, when we hit the pandemic in 2020, all our (preplanned budget) plans were useless as it would have ruined RVshare if we had continued on that spending level. Two months later, it turned out that we needed to spend way more aggressively than we ever expected and we ended up ‘overspending’ according to budget plans by many millions.
Brand versus Performance
“You should always invest in the long-term by building a brand” versus “Performance Marketing is key, Advertising can’t be measured”. If you’ve heard both, welcome to the club! If you lean one way, you might be able to learn a bit more about the other side. It’s a misconception that you can’t measure a brand. The comparison that I keep bringing up to people is the one of Booking.com versus Airbnb, one very well known for its performance marketing and the other one for its amazing brand building. However, that doesn’t mean that Airbnb spends over $400+ million on efforts that I would mainly categorize as performance marketing. Initiatives don’t always belong in a bucket, although I just described as they do. Both sides are just as important and not your budget but your overall marketing strategy should guide you on what to spend money on. Ours has guided us in multiple ways but we’ll remain to invest heavily in both buckets, in the future.
Working with Finance
Understanding Finance & Their Concerns
As part of the misconceptions, I touched on unlimited resources, and money isn’t unlimited for a company. If you’d spent all of your marketing budgets in the first month of the year, you likely would go bankrupt because your Finance team wasn’t aware of you doing this and ran out of cash flow. They also have a lot of their worries around financing and accounting, which makes it so that you need to be aware of what they care about and help.
Actually Understanding Finance & Accounting
Pick up a couple of books that can give you a high level of what finance and accounting terms mean so that you know how to speak the language of your finance team/CFO.
→ The HBR Guide to Finance Basics for Managers is a good start. After that, you’ll easily figure out what other books you might find interesting and how deep you’d like to go into the topic.
Being able to prove ROAS accurately
Invest in (marketing) analytics so that you can more accurately predict the return on your investments. We have spent the past two years getting good at this to ensure that we can ensure that our investments are returning value for the business. This is not just important for budgeting, but also a direct way to give Marketing a seat at the table as we can provide good answers to questions about how much money every additional 1M of (direct) marketing spend could be.