Many companies don’t spend what they should on Marketing and PR. Here’s how to do it.

By Bob Beauchamp, Chairman of the Board, BMC Software

If you ask CEOs or CFOs about their biggest frustrations, you’ll get a lot of different answers. But there is one that’s likely to be on most of their lists: the struggle to determine just how much money to invest in marketing and PR, and what the return on that investment really is. The author also talks about the need to embrace a compensation model based on business impact.

 

Determining marketing and PR’s business impact is a major challenge for both B2C and B2B companies. In B2B, long customer buying journeys and extended time lag between “marketing or PR cause” and “business effect” made it all but impossible to judge what the business was getting in return for each dollar of marketing investment.

Caught in the annual “planning and budgeting” competition for resources, marketing and PR often have gotten the short end of the stick. The result has been that marketing and PR’s business impact has gone unrecognized and unrewarded in too many companies. There are two big reasons for this:

  • Most business leaders have been told for years that it isn’t possible to accurately measure the revenue impact of marketing and PR spend, particularly in B2B. That was probably true for a long time, but it’s not true now. The data and the analytics necessary to demonstrating marketing’s business impact are finally here and ready for prime time.
  • Many marketing and communications teams have grown comfortable justifying their budgets based upon activity. We have seen an explosion of martech software in recent years. Few – if any – of these tools have made their presence felt in board rooms because they serve up volumetric measurement of activities that many CMOs believe is evidence of impact but isn’t. Business leaders want to see evidence of cause and effect, culminating in financial impact. And because time has great value, they want to know how long it will take for that impact to materialize.

From 2001 until 2016, I served as CEO of BMC Software. As multiple BMC CMOs will tell you, I was one of those CEOs who had real concerns about spending significant sums on marketing. We did analysis every year, and the result was that we invested strongly in the impact that PR and analyst relations made on our sales success. But we could not find comfort, much less proof, that our spend on marketing and advertising improved our performance.

Today, I am privileged to sit on some major corporate and not-for-profit boards. As a CEO, and as board member, I have been part of reviewing plans and budgets submitted by many different business and functional teams across all these organizations. There is often a lot of passion about the investment decisions. And without fail, every group always represents that their budget requests are easily cost justifiable.

Boards, CEOs and CFOs often see a budget request as an investment deal: in return for X dollars, the business unit or functional team usually promises to deliver more revenue, better margins, accelerating cash flows, and brand accretion. We can’t fund everything, so it’s a big part of our job to rank every these investment. But here’s the problem: Determining that stack rank is very tough if we can’t connect investment to incremental value.

There are several areas in most companies that routinely struggle to connect the dots and provide real value metrics, and one of the biggest culprits is always marketing. It’s hard to determine or trust the right marketing spend request for next year when marketing can’t say what the return was on the money they spent this year.

Let’s briefly compare marketing to its erstwhile partner, direct sales. Sales in a growing B2B enterprise is anything but perfect in most companies, but there’s usually a clear, historically supported ratio between incremental sales expense and incremental revenue performance. If we add 50 new sales people, we know what we are likely to get in return for that investment in year one, year two and so on.

Marketing and PR still can’t do that in most companies, and their agencies can’t either. There are a lot of hardworking people in both professions, but marketing and PR tend to avoid “hard numbers” analysis of their impact. This “proof gap” is an existential threat to the future of many CMOs, particularly in B2B.

According to the CMO Council, it is why so many Fortune 1000 companies have fired their CMOs in the past two years. It’s why the average CMO tenure in those companies has fallen to just 18-22 months – even after five years of major martech investment. It’s why there’s only 89 CMOs sitting on Fortune 1000 boards.

Today, we see huge waves of change merging into an unstoppable convergence. More automation means that human beings can focus on creating strategic value because machines will handle the necessary but repetitive tasks. AI – especially machine learning and deep learning – already is helping us identify crucial patterns that historically were beyond the ability of human beings to see. Democratized analytics – like democracy in general – puts more informed power in the hands of the people who are making important decisions every day.

So, where do we go from here? It’s time for marketing and PR to change and modernize so that they are fully a part of the business. In many companies, these functional departments will require assistance from business leaders to achieve three crucial transformations:

  • Run marketing and PR like a business. Almost every other part of the businesses I’m involved in defines their success in terms of their contribution to profitable growth. This means being able to account for not only what you spend, but for the value you created. Today, some progressive CMOs and CCOs already are leveraging advances in data federation, democratized analytics for everyone, machine learning and other AI-driven insights to transform their operations from cost centers to rocket motors. It is time for all marketing and PR leaders to justify their investments and deliver financial scoreboards, not just activity and perception dashboards. Those are important, but they in no way answer the business value question.
  • Use data and analytics to calibrate marketing and PR investment: The revolution in data analytics, AI, and machine learning are reshaping the work force, and our global economy. It is virtually impossible to exaggerate the impact these new tools will have on marketing and PR. Why shouldn’t CMOs and CCOs lead the way in the adoption of these game-changing new tools and finally provide for accurate views of cause and effect in our marketing spending? There are powerful new analytics platforms that are available today to help establish impact and govern investment. It’s time to use them.
  • Embrace a compensation model based on business impact. Now that we can understand marketing and PR impact, we must redesign compensation plans that reflect it. Marketing and PR professionals clearly believe they create a lot of business value. But business leaders need a lot more than belief. We need CMOs and CCOs who believe so strongly in their financial impact that they will tie their compensation to it, just like any sales leader. The same is true for advertising and PR agencies and marketing consultancies. It’s time to say clearly that hourly billings have no connection to value creation. Modern CMOs and CCOs should compensate their agencies and consultancies based on the incremental value they create. This significantly improves economic alignment between the agency and the company, all while reinforcing the importance of value creation v. spending on activities.

The arrival of machine learning and other forms of AI, as well as increased automation and democratized analytics, signals that the glory years of marketing and PR are here and now, with more to come. These big changes are converging to transform “creative-first” marketing and PR into powerful “business first” engines of growth and profitability. If you’re a CEO or CFO, this is a game changer. If you’re a CMO or CCO, this probably looks scary, but I assure you that it’s really the big break that you’ve been waiting for.

A long-time technology CEO, today Bob Beauchamp serves on the boards of a number of global companies, as well as a top university and leading not-for-profits. He is not invested in or affiliated with any martech vendor.