If you are new to the CMO role, understanding the organization and spending is one of your first jobs. Given today’s economic climate, ensuring your team maximizes every budget dollar is vital. Check the list below for the 12 indications of a spending problem in your organization.
#1 – You are missing the targets for customer acquisition cost or sales/marketing efficiency
CAC and sales/marketing efficiency are the two board metrics that point to marketing efficiency. Private equity-backed companies track this measure often, and companies looking to sell will use this as the measuring stick of efficiency. Missing these targets is the most evident proof of an efficiency problem. Solving this issue requires CRO and probably CFO help.
#2 – You don’t know your customer acquisition costs or sales/marketing efficiency ratios
Missing the targets for CAC is one problem. Not knowing your CAC and sales/marketing efficiency ratio is another. Figure out where the organization is against these metrics ASAP. A board member is likely to ask at the next meeting. Getting surprised that your CAC or S&M efficiency could be better is not a great experience.
#3 – You uncover a multi-layered organization with low management spans
Google “optimal management spans,” and you will find experts recommending that managers have from 11-15 direct reports. Tell a marketing manager that they need to have 11-15 direct reports before they can hire a manager beneath them doesn’t go over well. Marketing has such diverse skills on a team that managing ten people doing different functions is very challenging. However, finding teams where managers have just a few direct reports generally points to organizational design problems. In addition, extra management layers slow down velocity. Flatten the org or freeze additional manager hiring until you can build the optimal structure.
#4- Agencies are doing more than 10% of marketing’s output
As you work through the org chart and reach individual contributors, are they just managing agencies? It is common to find large inefficient organizations where agencies perform most of the work, from campaign development and execution to marketing automation. Untangling and eliminating these relationships is challenging.
#5 – Lots of contractors filling full-time roles
A poorly structured marketing org might contain significant contractors to get around hiring restrictions. Reduce contractors and either eliminate their work or reprioritize the tasking of your full-time team or properly hire full-time employees to take on the contractor work.
#6 – A culture of “I need to hire someone if we want to do that….”
Organizations that always need to hire for new tasks need help prioritizing. While in some cases, a new hire is necessary, reprioritizing work can get the focus required for new jobs. If your new organization always tells you they can only do a new task with hiring, change the culture to prioritization, not hiring.
#7-Every new hire is experienced
Hiring new college hires or junior career talent is formidable for a hiring manager. Training junior career talent takes time. Even an adequately trained junior talent might decide the role isn’t for them. Because of the difficulties of hiring junior talent, managers tend to ask for experienced hires in job requisitions. Experienced hires drive up the average FTE cost in marketing and create an organization with little upward mobility. If your organization is senior career-heavy, consider starting a new college hire or intern program and canceling most open senior-level requisitions unless somebody can make an ironclad case for a senior career professional. For every senior hire you make, there is a junior person who wants that job already in your organization.
#8- Role invention
Everyone has been in a meeting when someone introduces themselves for several minutes explaining what they do and you still don’t understand their role. Clean up the internal titles in your organization so you know what everyone does. Compare your org against this list of core marketing roles. Add responsibilities or clarify roles to get everyone into a clearly defined position.
#9- Lack of zero-based budgeting
Budgets shouldn’t automatically increase each year. In fact, as an organization scales, marketing should get more and more efficient on a product-by-product basis. Indeed, new products are more expensive to market than older ones, but efficiency should increase. Healthy organizations reset budgets to zero each year and work up what is required to meet the business needs while also rebalancing budget dollars across people, programs, and systems.
#10 – The ratio of budget spent on revenue to support is low
In any marketing organization, teams of people drive revenue, product knowledge, and support. Each of these groups has a budget. How much of your marketing dollars (people + discretionary spending) goes into these groups?
|Revenue Generation||Knowledge Production and Thought Leadership||Support|
The revenue generation teams, including corporate marketing for buzz, should get the bulk of the marketing funding. Every dollar spent in the support column is less knowledge production and demand generation. Maximize money on demand, and minimize cash on support.
#11- Unattributed spending
How much of the total spending in your budget is unattributed to a particular person/team? SaaS tooling, premiums, sponsorships – all kinds of expenditures can reoccur year after year if it is not attributed to an accountable person who must defend the expense annually. Find and cut unattributed spending, and you will discover who wants to protect it.
#12- Missing budgeting attribution by: product, region, purpose, owner
Finally, the ability to view the budget by product, region, purpose, and budget holder provides a way to calculate CAC by product, spending by investment region, budget allocation by purpose, and whether budget owners are aligned with specific goals. If you can’t get to this level of detail, it is challenging to validate that your spending is efficient.
While more challenging economic times in tech may be pushing marketing organizations to be more efficient, good spending habits and budget control should always be in style.