Many banks and fintech companies are facing major macroeconomic headwinds. Whenever the economy starts to shrink, one of the first areas typically hit is marketing budgets. So what is the best way to create an effective marketing budget that marries the idea of helping the bank grow while cutting back on activities that are not as impactful?
In our marketing department, we have a belief — and data that supports our belief — that while many institutions cut costs during recessionary times, this is the wrong time to pull back marketing spending. Brands that are consistent with marketing spend typically gain market share as their competitors pull back during recessions.
While this hypothesis is generally true, however, it doesn’t mean all marketing activities lead to growth. From promotional/swag, events and branding costs, there’s a lot to unpack within a marketing budget that arguably could and should be pulled back or removed completely, especially when dollars are tight.
All Goals Are Not Equal:
Nothing screams BLOAT in a marketing budget more than evenly split spend across all marketing channels.
So how do you balance investing in marketing while pulling back in less impactful areas? There are three simple, yet crucial factors to consider.
1. Have A Beginner’s Mindset
Marketers are often constrained by what they already do in terms of their activities and campaigns. Most budgets are built from the previous year’s spend (which was made from the year before that, etc.), tweaking and reallocating spend from a few categories and, for the most part, staying relatively the same.
However, reframing budget priorities through a “beginner’s mind” is one of the best ways to remove bloat from the budget while still investing in growth. Beginner’s mind is a theory in Japanese Zen that involves studying a subject with an attitude of openness and lack of preconceptions — just like a person who is learning for the first time.
Jason McNellis, Senior Director Analyst in the Gartner Marketing Practice, suggests a surgical approach to budget cuts and makes the case that this is a better approach than a blunt percentage cut.
Avoid Blunt Trauma:
Cutting budgets by percentage can damage the bank in both the short and long term because you are not tying budget cuts to the overall goals of the institution.
I would suggest that to truly implement McNellis’ suggestions on taking a surgical approach, banks should completely rebuild the budget with a beginner’s mindset, tying all the activities to the overarching goals and focus of the bank — both long- and short-term.
Doing this has multiple benefits. First, this beginner’s mindset helps challenge legacy practices that may bloat the budget and whose outcomes don’t tie to the marketing department’s goals or the bank’s goals in its current environment.
Second, it helps produce clarity for the marketing team as to where the priorities of the bank currently are and what activities are contributing to achieving those goals.
Third, this exercise helps marketing departments do an annual deep dive on the effectiveness of marketing activities in the face of a digital marketing landscape constantly in flux due to changes to Google’s or Facebook’s algorithms.
2. Marketing ROI Shouldn’t Be the Goal
In a budget-cutting environment it’s critical to not focus solely on short-term goals. Executives and CFOs tend to allocate marketing dollars to objectives with higher ROI and short-term gains, but there are better approaches to building a budget or growing a brand.
You Are What You Measure:
Marketing ROI is an efficiency metric, not a growth metric, and it’s certainly not a success metric when viewed in isolation.
Even if you could accurately measure your total ROI (which you can’t), it just tells you whether or not the spend was efficient, not whether or not it was impactful.
This ROI fixation is a problem many marketers face when it comes to building a budget. We are constantly looking at how to be efficient but need to be more impactful. Marketers’ number one goal for the bank should be to find short- and long-term growth.
An example of the marketing ROI trap can be seen when evaluating two different marketing campaigns. One campaign might have a 14% ROI versus one with a 200% ROI. But the first campaign generated $2 million in net revenue while the other brought in just $20,000. Clearly we want to invest in and focus our marketing budgets on impactful activities and campaigns, not only on efficient ones.
Additionally, ROI doesn’t scale. It favors tactics that cost little money but also make little money. The easiest way to manipulate ROI is not to increase the numerator but to decrease the denominator, which often leads to a death spiral for brands.
Instead, balance the budget between long-term brand building and short-term sales activation. The risk of rebuilding a budget is having a bias for short-term performance marketing activities. While this is important, the effect of these campaigns is brief and doesn’t lead to long-term brand growth. You need to ensure you are investing in activities that build out more reach and repeated exposure, in addition to short-term metrics such as customer acquisition cost.
3. Tie Your Budget to Learning, Then Double Down
The whole point of having a beginner’s mindset is laying aside preconceived assumptions to help provide clarity for the path forward. Marketers don’t starve; we drown. It’s not that we don’t have enough to do; it’s quite the opposite. There are too many directions that we can take and too many ways to split the pot, and what we often lack most is clarity.
When marketers spread their limited resources and budgets across too many channels, they get neither the necessary impact nor the clarity as to what will work to help the bank grow.
Consequently, the key to any breakthrough marketing is insights. Creating a budget based on experimentation and learning tied to the bank’s overall goals will be more impactful than just tying it to activities. This process helps build a culture within the marketing department of proper experimentation and insight-gathering that will pay massive dividends in the short and long run.
As you learn from your experiments, reallocate your resources to double down on the winning channels. Just as every bank has unique strengths in their portfolios and therefore allocates resources towards those strengths, your marketing spend should reflect your relative strength in your channels.