Justify budget requests with a solid set of projections

Are you having lots of conversations with your CFO, board or investors this autumn? You should be.

Right now, they’re thinking about how to steer the ship through next year. What to do, where to invest and, because the 2024 economic outlook is uncertain, how to reserve some cash to see the business through any rough patches ahead.

Everyone in the business will be making a pitch for their department’s needs and plans. And it’s important that marketing, more than any other department, makes its case in the best possible way.

Marketers are at a permanent disadvantage with finance. Even though advertising drives growth and often supports higher prices and better profits, it only ever shows up on the balance sheet as an operating expenditure. Something that finance people are always trying to minimise.

So, it’s mission-critical to take every opportunity to speak finance’s language. To justify your budget request with a solid set of projections that show how it’s going to deliver solid money results.

Identifying the right plan

Identifying the right plan is crucial to getting budget agreed. One FMCG marketing director who, despite having a quality product to sell and an established, well-loved brand, was presiding over slowly declining sales and share.

With the cost of living crisis biting and pressing initiatives elsewhere in the business, discussions were about whether it was even possible to maintain last year’s budget. She believed significant increases were needed but had no way to prove it.

With help from her insight team, we worked with her to carry out share of market, share of voice analysis using a free tool we have created (forgive the plug). It takes budget plans you put in and scenarios for what competitors might do and uses the share of voice, share of market rule pictured below, to predict your likely market share next year.

It then combines this predicted market share with economists’ forecasts of how big your category will be, to get a figure for the additional turnover and profit your budget will deliver.

For the FMCG brand, it demonstrated the slow decline was down to the fact that year after year, this brand was being outspent by a competitor with deep pockets.

She showed her CFO that the budget needed just to maintain market share at its current level was quite a bit higher than last year’s spend and so secured a bigger pot to play with.

‘Everyone’s got an opinion’: Cautionary tales from the budgeting and planning frontline

‘Spend more’ isn’t always the answer

But the outcome of this kind of wargaming isn’t always “spend more”.

Trying different scenarios enables you to identify the budget that’s needed to reach targets if all goes well – the economy doesn’t tip into recession, and media prices don’t get too high. It then allows you to stress test that scenario, for different, perhaps dicier, versions of the future.

In another example, a manufacturer of a fun but expensive gadget, the right decision was to delay their planned campaign.

Even though the budget levels they were suggesting would bring market share gain, economists’ forecasts of demand in their category were low. Because of the cost of living crisis, people were delaying purchases like theirs.

The media planner ran scenarios that showed the same spend would bring better returns in 2025, when demand was back to normal. So, they shelved their plans in the short term.

The economy is going to be ‘meh’ in 2024 but your marketing plan can’t be

The outcome was different again in a third example, because the ask from finance was not to justify a budget request but to understand the risks of continuing to outspend competitors.

It was a particularly uncertain time because their category had seen huge sales figures during the pandemic. The product has a long purchase cycle, and the worry was that demand would be lower going forward.

This kind of wargaming isn’t everyone’s cup of tea, and you do need to collect a bit of data about what’s happened so far.

They worked through a wide range of feasible futures, iterating through possible things competitors might do, possible trajectories for media costs, and both optimistic and pessimistic economic scenarios.

Taken together, these showed that, actually, the range of possible financial outcomes was narrower than the CFO feared.

The budget didn’t change much from what they originally planned, but they were able to move ahead feeling confident with their plans and alert to changes in the outside world that would mean it was time to change tack.

Get a planner in your life onto it

This kind of wargaming isn’t everyone’s cup of tea, and you do need to collect a bit of data about what’s happened so far.

So, find a planner in your team or media agency, or, failing that, someone you know who’s usually good with spreadsheets.

They’ll get stuck in, and before you know it, you’ll be marching into those conversations at the top table fully kitted out with the business case you need for an impressive 2024.

Grace Kite is the founder of Magic Numbers which provides practical training and people-friendly analytics to help marketers drive growth.