Most marketing budgets are losing 0.8 - 2.1% of their budget to subtle forms of waste accumulated from numerous small issues.
A free(ish) vacation every year
When I was growing up, my father used to save for family vacations by putting the small change he had in his pocket at the end of the day into a large glass jar. When the jar was full, we would empty it out onto the floor to sort and count the coins and tally up its contents.
Every year we were absolutely floored by how large the total was. How could these tiny - borderline worthless - increments add up to something as meaningful as a vacation? Every year it worked. And every year we’d be left shaking our heads, grinning at each other about what felt like a free holiday. But of course it wasn’t free - it was enabled by what I call the Law of Small Change (LSC).
Looking back, I think the key to LSC working was the discipline my dad had about the process. Every day, without fail, when he got home from work, he’d retrieve whatever coins were in his pocket and drop them into the jar. Every day. Without fail. If he’d only done it occasionally, the jar’s contents would never have amounted to anything. If he’d left the coins on a side table from time to time instead of putting them in the jar, we’d have had the same amount of money in the house, but our vacation fund wouldn’t grow enough and we’d probably have ended up doing...well...nothing with it. That’s important. We’d probably have just ended up with a lot of medium sized piles of change knocking around the house that didn’t get spent. It was the consistency, the repetition, the routine that made it happen.
“How is this relevant to marketing budgets?” you may be asking. Fair enough.
The LSC at work in Marketing Budgets
Marketing teams accrue piles of small change at amazing velocity and in diverse ways. There’s no other function in which so many people are empowered to spend so much and so quickly. We’re going to highlight nine key ways in which marketing leaves small - and sometimes not so small - cash stranded in the nooks and crannies of its marketing budget. And we’ll highlight how these piles add up to shockingly large totals.
One thing to be clear about at the outset: these losses are not due to negligence or incompetence. Rather, they’re the inevitable outcome of legacy tools and platforms that are unfit to manage marketing budgets, which are complex and change a lot. We built Plannuh to solve these problems.
Here are some of the key factors. We know these are both real and significant because we onboard and manage hundreds of real marketing budgets, and our marketing database - the Plannuh Marketing Graph - shows us the facts.
- Not reviewing the marketing budget regularly. A marketing team should spend every last cent of its budget in the most thoughtful way possible, and not a penny more. Marketing teams that don’t regularly review the status of their budgets and maintain a current view of the state of the budget don’t have a chance of doing this. Most months, they will overspend or under-spend, culminating in a major miss by the end of the year. One of our customers reported that before using Plannuh, they reached the end of the fiscal year to be told by finance that they had underspent by tens of thousands of dollars on a budget of less than $1,000,000. That money could have delivered meaningful business results. The VP of Marketing didn’t know because they didn’t have a process and platform that supported a current view of the marketing ins- and outs.
- Not reviewing the budget as a team. We requested a customer bring their entire marketing team to a training session, which was unusual for them. During the meeting, as we reviewed their budget in Plannuh, a budget owner piped up, “This is awesome. I didn’t even realize I had a $50,000 budget in Q2.” Why didn’t they know? This was a smart team run by a strong VP of Marketing. There were a few reasons, but the main one was that they did not review the budget as a whole team. There were people with buying power and budget responsibility who didn’t know what they were empowered to spend and when.
- Budget spread over multiple worksheets. A customer walked us through their budget spreadsheet prior to onboarding to Plannuh. It looked like a work of art. Beautifully laid out. Formulas pulling data from other worksheets. A separate worksheet for each budget owner, entering their data into a common template. The problem was that the totals on the individual worksheets didn’t match the totals on the summary worksheet. And the totals on the individual worksheets didn’t add up to the full budget target. It required forensic analysis and some black-belt spreadsheet skills to figure out all the errors. The problem is Excel fails silently. If someone hard-codes a number on top of a formula in one cell, enters a number as text in another, inserts a row that’s not included in a formula in another, etc, multiple little piles of wasted budget are distributed throughout this complex spreadsheet, hidden in plain sight. Every incremental worksheet, or - worse - spreadsheet, and every incremental user working in the spreadsheet, increases the frequency and likelihood of errors.
- Poor visibility into the budget. One budget we onboarded had run out of funds for two of its four divisions at the end of the eighth month of the fiscal year. Every penny in the last third of the year was 100% over budget. The budget owner didn’t know this because their spreadsheet - provided by finance - was so complex that it was genuinely difficult to understand what was contained within it.
- Stranded budget in completed campaigns and closed expenses. One company realized that it had 23% of its budget still available to spend. That’s not great. Worse, they had only 2 weeks left in their budget year to spend it - an impossible task. That 23% was an accumulation of numerous small deltas between planned and actual expenses, and small underspends in completed campaigns, that had accrued throughout the year. Just like the vacation money jar, they added up to a significant total, and could have added tremendous business value if they’d been easily visible to everyone on the team.
- Inaccurate budget tracking lost to use-it-or-lose policy. One of our customers routinely lost between 5% and 10% of their budget each year because they couldn’t spend their budget in time with their existing budget tools. They didn’t have a current view of what they had spent, so they were nervous to overspend as they approached the end of the quarter. Therefore they shied away from spending towards the end of each quarter. Once the expenses were reconciled, any remaining budget was lost for good.
- Overpaying due to multiple rush orders. Rush charges occur - most of the time, at least - when a poorly planned expense is incurred. Poorly planned means the team finds itself making an investment in something services-based and not leaving itself time to negotiate a fair price. Common examples of this are printing, design and booth needs for events. Typically the marketing team will find itself overpaying by at least 10% for such expenses.
- Not reconciling expenses with finance. One prospect who did not become a Plannuh customer (you’ll see why in a minute) was a CMO who told us that he did not reconcile any expenses in his multi-million dollar annual budget. We expressed surprise that this was so, since he acknowledged he had no way of knowing his current expenditure with any accuracy. His outlier status was confirmed when he stated that he was okay as long as the budget was “within about 20% of the target by the end of the year.” If your company is okay with your budget being 20% inaccurate, Plannuh is not for you.
If your company is not okay with that, then you need to reconcile your expenses (and we should talk). But just committing to reconciling them is not enough. You need to understand what you have spent as soon as possible. Unfortunately, turnaround time for expense reconciliation is painfully slow. This creates lots of small piles of stranded budget throughout the plan, which, as we’ve seen above, are difficult to track, and add to the cumulative budget risk.
- Making mistakes in expense reconciliation. One of our customers generated a 19% budget inaccuracy by - thanks to a spreadsheet design error - summing up their planned and actual expenses. While this is a gross error, there are numerous manual reconciliation errors that occur over the course of a year. Failing to close expenses. Closing them for the wrong amount. Accepting expenses from other departments. Logging expenses in the incorrect currency and so on. Every one of these errors leaves a small pile of wasted budget.
Hopefully these examples have illustrated that to get the most out of your marketing budget, you must track and manage that budget diligently, with regular, teamwide reviews of spending. You should maximize the freshness of your data, ensuring no budget is left stranded in campaigns or unclosed expenses. You should accurately and promptly reconcile expenses as soon as possible. This is almost impossible to do with spreadsheets, and is exacerbated by distributed and shared spreadsheets.
The PMG shows us that companies consistently generate cumulative budget risks of 15-25% annually due to an aggregation of the issues above, over the course of the fiscal year. In other words, they lose 0.8 - 2.1% of their budget each month to the Law of Small Change. There is a tremendous opportunity to reclaim that lost budget - the marketing equivalent of that free vacation. Who wouldn’t like a 15-25% budget increase?
Plannuh is designed to address the LSC. Get in touch with us to learn more about how much of your budget could be stranded, and how to reclaim it.
Dan Faulkner is the CTO of Plannuh. Dan has degrees in speech and language processing and marketing. He got his marketing degree after running research for text-to-speech synthesis research at SpeechWorks (now Nuance) and must have been looking for something easy to do. You can follow him on Twitter and LinkedIn.