Marketing is a cost centre...

Marketing is a cost centre, maybe it is…

I listened to the Gartner Webinar yesterday with Ewan McIntyre, on The Gartner CMO Spend and Strategy Survey 2024: Refocus Your Marketing Priorities. Right away a few statistics jumped out:

• 62% of CEO’s cite growth as a top business priority for 2024-2025
• Average marketing budgets fall to post-pandemic low, (7.7% as a percentage of revenue, down from 11% pre-pandemic)
• 73% of marketers thought marketing is being asked to do more with less and 64% think they don’t have enough budget to execute the 2024 plan
• 47% of CMO’ s in 2024 thought marketing is regarded as a cost centre, up from 39% in 2023

Reading between the lines it looks like in some cases, and perhaps an increasing number of cases, that marketing is being treated as a cost centre. Demand for growth or profit not necessarily being associated with marketing investment but more importantly significantly increased pressure to reduce costs, increase efficiency and productivity sounds like a cost centre optimisation strategy.

The cold truth

In some respects, marketing could, and maybe should be considered a cost centre. Where expenditure is highly tactical, costs are aligned to specific product sales, sales or promotional campaigns and where revenue attribution or assignment is weak, it’s understandable that these might be seen as a cost of doing business, a cost of sales.

Contrary to popular opinion ‘digital’ could have accelerated the lurch toward marketing as a cost centre in many businesses. Despite clearer association with revenue, marketing may be trapped in a ‘digital dungeon’, a relentless drive for efficiency in pipeline management, cost-efficiency and sales.

Brand building on the other hand could be seen as investment in a range of intangible assets and intellectual capital, not an expense. However, marketing consistently fails to explain the focus and impact on these assets and capital. The levers of intellectual capital and intangible growth are not clearly defined and so the investment strategy isn’t as clear as it could be.

Becoming a profit centre

I’ve heard arguments for marketing as a ‘revenue centre’. These are broadly based on new technology and attribution approaches. In my view these are still a little tenuous, better approaches could and should include Marketing Mix Modelling and Econometrics, predictive and probabilistic forecasting. However, setting the tools aside I still think wanting to be seen a revenue centre is just not ambitious enough. I’d argue that refocusing on contribution margin and clean cash flow is a better route toward commercial credibility and recognition for marketing as a strategic contributor to the business – a ‘profit centre’.

Marketing as a strategic enabler

Of course, re-establishing commercial credibility is only a small part of this, and whether marketing is a cost centre or not may be a distraction. What’s arguably far more important is that marketing needs to re-set the agenda and develop a new narrative around commercial strategy and operations and the orchestration of customer and commercial value. It needs to re-focus on leading the business through market and customer strategy, concentrating on strategic outcomes. It needs to reassert itself as a leadership discipline and avoid becoming and ‘execution only’ function.

Wherever marketing is skewed toward tactical, functional outcomes and cost-efficiency there’s a risk of it being considered a cost centre. What’s needed is clear alignment with revenue, more importantly margin and cash flow and demonstration that marketing knows how to manage the levers of customer and commercial value, in particular those that create differential advantage, intellectual capital and intangible assets. This is a way to re-set the agenda and remove the notion that marketing is a cost or an execution-only function.

Footnote – there are many businesses out there that don’t treat marketing as cost centre or tactical function, where marketing has a seat at the ‘top table’, even if there’s no CMO. It’s seen as a collection of integrated strategic disciplines, not a function – and of course there are businesses where marketing has always been recognised as strategic, commercial and creative, a strategic asset, not a cost centre.

For more about commercial strategy and operations, orchestration of commercial and customer value and supporting frameworks have a look at adaptomyDNA or if you're interested in changing the narrative have a look at adaptomyREACH , a community for commercial innovators building methods, tools, techniques, metrics and measures to deliver commercial strategy and operations.