Welcome! This post is part 2 of a three-part series on building and managing a marketing budget:
- Part 1: How to Organize Your Marketing Budgets
- Part 2: How to Build Out a Marketing Budget [below]
- Part 3: Ongoing Management & Tracking of a Marketing Budget
Note: this guide is written with marketing teams of 10 or more in mind.
In this post, we’ll provide recommendations for building out a marketing budget — things to keep in mind as you itemize a marketing budget with all the activities and funds for an upcoming financial year or quarter.
What we’ll cover
- Top-down vs. bottom-up budgeting
- Building out a marketing budget: step by step
- Avoiding marketing budget pitfalls
Top-down vs. bottom-up marketing budgeting
There are two basic approaches to marketing budgeting: top-down and bottom-up. We’ll explain each one here, and share our recommended approach.
Top-down budgeting is done according to marketing investment targets. Usually set by the CFO and/or CMO, these targets divide dollars up into several big buckets of spend.
Marketing leadership will typically divide the total marketing spend available according to functional area of marketing (field marketing, product marketing, etc.) or, by cost center. They’ll then communicate these targets to the leaders of each of these areas — often using PowerPoint.
Next, these mid-level marketing leaders (a Director of Field Marketing, for example) will further divide their bucket of spend in a way that makes most sense for their team.
Not every leader will categorize their allotment of the budget the same way — in fact, it’s quite common for marketing spend to be be organized differently within the same organization. For example, a software company’s field marketers may divide up their spend by region, whereas their corporate marketers may divide spend according to an analyst framework.
Once this secondary level of prioritization is done, it’s up to the individual marketers on the various teams to populate their budgets with the programs and activities they feel are the best use of the dollars they’ve been allocated.
Note: Often, marketing investment targets can change between the time when they’re first announced and the beginning of the new fiscal year. Changes like these can be disruptive — especially when you’ve already built what you thought was a great marketing plan!
In this situation, it’s time to negotiate to retain those budget dollars. You’ll have to make a business case to protect the marketing spend in your area.
When individual marketers start with a laundry list of programs and activities they’d like to spend money on and, one by one, pick which of those will be added to the budget, they’re doing bottom-up marketing budgeting.
Once all the tactics are added to the budget, the marketers make additions or subtractions as necessary, in order to stay within the spend targets they’ve been given.
A pure bottom-up approach to budgeting is common in startups, small organizations, or businesses with less mature marketing operations functions.
Jennifer Cracklen, Allocadia’s Lead Education Consultant, helps enterprise marketing teams get set up with their marketing budget processes.
“We recommend a hybrid approach that combines top-down and bottom-up marketing budgeting. The most effective approach is to start with top-down target setting, followed by building a bottom-up activity plan. This approach gives marketers the autonomy to plan their budget the way they feel is most appropriate, while still staying true to the overall priorities marketing leadership has set out.
Effective marketing budget planning takes time. We recommend that organizations start the process 3-6 months before the start of their fiscal year, so the various marketing teams have ample time to define those tactical plans.”
Building out a marketing budget: step by step
When it’s time to actually build out your budget, here’s what the process might look like. Of course, there will be lots of organization-specific variations, but this basic structure is widely used:
- Your marketing team receives its spend targets from the top-down budgeting process undertaken by your leadership or Marketing Operations. Now you know how much money you have to invest for the year, so it’s time to sit down as a team and make some decisions.
- List all the activities your team may want to execute during the year along with their estimated costs and organize them into relevant groupings. Make sure to consider marketing activities or commitments you’ve made in the previous year. Thanks to accruals, those items will be part of the marketing budget of the year in which they occur — not the year during which the cash went out the door.
- As you pare down your list to only include what you believe will fit into your spent targets, start populating your budget in whatever system you use (Allocadia, or a spreadsheet). Note all the information about each line item you may need to state for reporting purposes, such as vendor, target audience, product line, region, CRM campaign, etc. In Allocadia, this is done with the details panel; in a spreadsheet it’s done with additional columns. In Allocadia, the fully-customizable details panel captures all that crucial extra information about each budget line item.
- Step back and assess each budget. Does it align with your targets? Refinements are likely necessary. This is when the hard questions typically emerge: what can we take out, and what should we leave in? What will the impact of those decisions be?
- Send your budgets off for internal review.
- At this point, there’s a process of adjustments, with the budgets going back and forth between the marketers who’ve built the budget and their leadership. Two-week cycles are common here: two weeks to define initial plan, two more weeks for the first review, two more weeks for additional adjustments, etc. On average, the full process may take around two months, although this number can vary wildly — especially if the numbers have to be approved by a board of directors.
- Marketing leadership assesses the budgets. They’re looking for two things:
Compliance: Did all the marketing teams plan the way they should have, and did they do it on time? Do their budgets align with their investment targets?
Performance: Marketing leaders will spend time analyzing each team’s intended uses of their funds. They’ll pay particular attention to whether the planned marketing investments adequately support overall corporate objectives.
- Marketing leadership approves the budgets. Now it’s time to get out there and start doing marketing!
Avoiding common marketing budget pitfalls
Don’t fall prey to the pitfalls that can happen surprisingly often during this process:
- Not remembering marketing activities that carry over from one budget period to the next. It’s easy to forget about subscriptions, retainers and pre-paid vendor agreements (such as conference exhibit fees). These are non-negotiable pieces of this year’s budget, and failing to include them in the plan will create confusion later on.
- Not capturing your originally-planned budget amounts. Undoubtedly, your budgets will undergo many modifications throughout the year. The line items will change, and so will the amounts. This is natural. As this happens throughout the year, too many organizations simply overwrite the original budget. They lose the ability to look at metrics such as plan vs. forecast (to help stay on budget) and plan vs. actual (to see how accurate the budget planning was). Make sure you have a way of capturing your original budget plan.
- Not allowing enough time. Year after year, we hear from organizations who are taken by surprise by how long the budgeting process can take.
Advanced Marketing Budgeting & Planning
In this post, we’ve covered the basics of building out a marketing budget. But for organizations looking to become more strategic in their budgeting processes, there’s much more to know, such as:
- How to plan for scenarios: Pinpoint in advance what your budget would look like in the event of a budget boosts, cuts, or other shuffles.
- How to plan in alignment with corporate strategic priorities: The highest-performing marketing organizations tie every single budget line item to one or more of the overall priorities of the business. If you can demonstrate exactly how they way your marketing plan supports the company’s big goals, you’ll be in a far better negotiating position if your budget dollars are threatened.
- How to plan for revenue impact: The ultimate in marketing budget planning: demonstrating how your plans will generate revenue for the business.
For more on each of these topics, check out The Gold Medal Playbook of Marketing Planning.
Looking for a better tool to build and manage your team’s marketing investments? Allocadia can help.
Also on this topic:
Your Marketing Budget: An Owner’s Manual
The essential guide for anyone who works with a marketing budget!