Provocateur:

2018 budget planning has started. In the face of the uncertain forecast,

CFOs are expecting more of CMOs than ever before.

Let’s face it: The economy is uncertain. Many experts believe that 2018 will see a major correction. The current pressure on marketing and communications to prove their value will intensify dramatically over the next year, and the likelihood of big, progress-killing mid-year budget cuts is high.

The average C-suite’s frustration is already spiking from marketing’s failure to prove its business value. In an uncertain economy, that frustration will intensify to a Category 5. Earlier this summer, a CMO at the big Frost & Sullivan event in Nashville opined that, “the more we can inspire our company to spend on marketing programs, the more value they will believe that we have as marketers.” Evidently, this logic was not successful, as she just lost her job.

Clearly, business leaders see the issue with marketing quite differently than marketers do, and the budget planning process tends to throw that into sharp relief. Marketing teams usually focus on achieving a certain volume of marketing programs. But in the minds of the C-suite, answering the core concerns about marketing and communications spend means being able to satisfy their questions about two key areas: opportunity cost and profitability.

Opportunity cost

This is all about deciding how to best spend the next dollar. Get it wrong by investing in the wrong thing means that you are a two-time loser. You not only lost the money you invested in X, but you’ve also lost the value that might have been created by investing that cash in Y.

Getting the opportunity-cost decision substantially wrong is something business leaders are hard-wired to hate. When faced with investing in something they’re not sure about, like the impact of marketing spend on the business, they tend to focus on mitigating the downside risks, not exploring the unproven upside.

Profitability

Many things contribute to profitability, but the basic calculus is all about selling as much as you can while spending as little as you can, all while still driving the growth, health, and prosperity of the business. When faced with proven sales impact, unproven marketing and communications impact, and the need to grow profitably, the C-suite sees an easy choice. They cut marketing.

Why many leaders fail to see marketing’s impact

In the race for resources, marketing and communications often fail to convince business leaders that more marketing and PR spend means more positive revenue, margin, and cash flow impact. The reason is time lag—or what some people call marketing’s time to impact—and it’s something that many marketers and business leaders fail to even think about.

Time to impact obscures the understanding of marketing’s business value, particularly in complex, long-cycle businesses. Unless marketers compute the time lag, no one will have any idea where in the calendar to look for the evidence of marketing’s business impact. If you don’t know where to look, you either won’t see the impact that’s been created, or you’ll think it was caused by something else.

How business leaders decide

In recent years, the rigor of the annual zero-base budgeting approach for functions such as marketing has gained a lot of popularity in many companies. Zero-base budgeting is primarily about attacking real or perceived waste in a budget by making everyone rejustify every line item for the next year. It can be a great practice because everything gets scrutinized.

The problem is that while programs can easily be identified for cuts based on targeted savings, few in the business, or even in marketing and communications, can quantify the medium- and long-term impacts of those cuts. That’s why it’s easier for business leaders to quickly approve cuts to marketing spend: They

have no idea what they’re losing because they have no way to understand marketing’s value.

Let’s contrast this with their attitude towards sales expense. Many companies have pattern-matched the relationship between cost of sales and revenue generation for years. They know that every untenured sales rep will likely drive X in new revenue over three years, and the compensation packages are adjusted accordingly. The relationship is clear: adjustments up or down in the number of compensated sales reps will have a known impact on revenue.

2018 and beyond

If your choice is between the known consequences of cutting the sales budget and the largely unknown and unproven consequences of cutting marketing and PR, the decision is pretty clear.

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If you’re a CMO, the best time to start computing your business impact was 10 years ago. The next best time is today.

You’re in a competition for resources that will only intensify as concerns about the economy, waste, and digital ad fraud prompt C-suite executives to get serious about understanding what your business value really is. The good news is that there’s an abundance of analytics that suggest that you’re making huge contributions to your business’s success. The bad news is that unless you get serious about proving it, no one will ever know.

About the Author

An award-winning B2B CMO and CCO, Mark Stouse is one of the first leaders to connect all types of marketing investment to revenue, margin and cash flow impact in complex, long-cycle companies. Mark was named 2014 Innovator of the Year for his pioneering work at Honeywell and BMC Software, and currently serves as founder and CEO of Proof Analytics.