Treat Your Budget Like an Investment

A better way to justify your marketing budget is to think of it as an investment that incurs costs today but delivers benefits for many years. This has two key implications:

Marketing expenses must be justified with a rigorous business case
Marketing expenses should be amortized over the entire "useful life" of the expense
In most organizations, any significant investment needs a bottoms-up business case that demonstrates it will deliver a minimum rate of return (called a hurdle rate). If the business case is made, the CFO generally approves it. Marketing spend should not be any different.

Demand generation spending is the easiest marketing investment to tie to ROI. Some programs generate leads, others nurture leads as the move through the marketing funnel. When the leads become ready, they are transferred to sales and become opportunities, some of which eventually close and translate to revenue. With the right marketing measurement tools, the entire process becomes measurable, the interactions between different marketing programs become understandable, and the future return on today's spending becomes quantifiable.

Other marketing investments, such as brand building and PR, are harder to tie to revenue without making assumptions. But that doesn't mean you shouldn't try. Assumptions are common in business-case-building and will be familiar to the CEO and CFO. One common way to get agreement around assumptions is to make "worst case", "expected case", and "best case" assumptions to show the range of possible outcomes.

For all types of marketing investment, the returns are usually not immediate and often come months or years down the road. The principle of matching expenses with the revenue generated by means of those expenses implies that marketing investments should be capitalized as an asset and not treated like simple expense items. In other words, the dollars spent on marketing should be amortized over the entire period in which those dollars deliver benefit to the organization.

Thinking of the marketing budget as a long-term investment can be especially important for smaller, fast growing companies. By amortizing investments in brand building, awareness, and pipeline that will pay back over many quarters, the percentage of marketing expense that is recognized in any given quarter will more closely match the current levels of revenue.

Summary
By treating your B2B marketing budget like an investment in the future, you can help build the perception that marketing is an asset that drives revenue, not a liability that simply incurs costs.

As important as this is, I am not trying to oversimplify a difficult and complex problem. Making the business case for each marketing investment is easier said than done given the tools and processes available to today's B2B marketers. My company, Marketo, will continue to research this topic and invest in building B2B marketing software to help. I appreciate hearing any feedback or comments you have.

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Posted by Jon Miller on January 21, 2007 in Accountability , Budgets , Marketing Funnel | How To Sell Your Marketing Budget To Your CFO
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