The six most common types of marketing budget

In the past few years, as I have been thinking more deeply about the process of building marketing plans and budgets (which ultimately led me to realize that I needed to build Plannuh), I have had the opportunity to review hundreds of marketing plans and budgets from companies around the world.

During that time, I started to recognize six common types of marketing budgets, including:

  1. No budget at all
  2. Just the dollars
  3. Expense buckets
  4. The Groundhog Day budget
  5. Bottoms up plan
  6. The Plannuh way

These budget types are roughly organized in the order of sophistication. I realize that it seems a little self-serving to call the most sophisticated one "The Plannuh way," but the alternative was to have a long, descriptive name.

Here's a little bit more detail behind each type:

No budget at all

This one is probably pretty obvious, but what is not obvious is how common it is. Most early stage companies don't have the concept of a marketing budget yet, because they simply need to spend as little as possible to get the results they're looking for. This is often the case for small companies that may not be early-stage – but they still happen to be small. I have encountered many of these companies in the last couple years as they have come to Plannuh looking for tools to help them build their first budget. In other words, they instinctively know that they need to do a better job developing their marketing budget, but they simply don't have the tools or the experience to build the first plan.

Just the dollars

The next step along the evolutionary scale involves earmarking a certain amount of funding for marketing, but making no attempt to determine how that money should be spent. It is a good step for some companies, because it often involves going through the thoughtful process of determining how much of their overall income should be directed toward marketing related activities. Many people who are at the stage have determined that there would be value for marketing, but don't have a specific roadmap to realize that value.

Expense buckets

The expense bucket approach is, surprisingly, the most common one that I have encountered. You often see this approach used with more mature companies that have a finance driven planning process. Their marketing planning process typically starts with a report from finance that shows how much they have historically spent by "bucket" on marketing activities. These buckets can be GL codes, department names, or other broad categories of marketing.

The danger of this approach is that it is often quite rigid and encourages incrementalism. In many cases, the marketing team is asked to develop a budget using the prior years expense buckets as a baseline and then they slightly increase or slightly decrease each bucket to achieve the overall budget target. In this model, it is extremely difficult to justify new approaches that may not fit in one of the old categories.

The Groundhog Day budget

This type of budget is a slight evolution from the expense bucket approach. It basically says start from what you did last year, and do something slightly different. The distinction between expense buckets approach and the Groundhog Day budget is that in the Groundhog Day approach, the marketing team typically has specific campaigns that they may have completed in a prior year that determine the baseline – which is slightly different from a generic bucket of expenses.

One thing that drives Groundhog Day behavior is a focus, and sometimes over reliance, on event-based marketing. Events can drive this behavior because they tend to require a very long term planning process. In the case of a major trade event, you often have to reserve your space for the following year immediately after you finish the current year's event. That can get you stuck in a pattern where you are committing large pieces of your budget well before you've even determined your strategic objectives for the next year.


Bottoms up plan

As marketing teams get a little more sophisticated, they sometimes employ a bottoms up planning process. This typically involves starting with overall goals for the marketing team and distributing the marketing budgets to each budget manager to develop their own plans.

There are many good characteristics of this approach. They tend to be goal driven, which means that they are targeting their marketing efforts based on the business objectives they are trying to achieve. It also can be empowering for the individual budget managers to put together their individual plans based on those goals.

The difficulty of this approach typically comes when you try to maintain an alignment or visibility into the budget throughout the plan year. Also, it can be difficult to make adjustments to your plan based on the realities of the market.

The Plannuh way

The ideal approach for managing your marketing plan and budget involves using an online system that integrates marketing goals, metrics and targets with the campaigns that help you achieve those objectives. The planning should be deeply integrated into the budgets so you can have a realtime view of your spending, and make adjustments to the plans as you see fit. There are a handful of companies who have successfully used this approach already, some have developed internal tools and processes to support this approach, and others have invested in sophisticated (and expensive) enterprise software systems.

We believe that everyone should have the benefit of connected, aligned, and agile marketing plans and budgets. That is why we built Plannuh.

What have we missed?

Have you seen a marketing budget that doesn't fit into one of these categories? If so, I'd love to hear about it. Add a comment on drop me a note to tell me about it.

You can learn more about marketing budgeting in this article: Marketing Budgets

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