How Can CMOs Prepare for Marketing Budget Cuts This Year?

42% of CEOs and GTM executives expect new business to come from new customers, yet they also anticipate cutting the sales budget by 13% and marketing budget by 24%. 

When I see that stat, as a Marketing leader, my mind runs through a gamut of emotions. Seeing my budget slashed with higher expectations for capturing demand would keep me awake at night. In my engagements with CEOs, I am often called to reinforce the value of Marketing and their role in reducing churn and generating new demand, while sharing strategic imperatives I am seeing in the current market.

In SBI's latest whitepaper, we reveal four strategic tensions CEOs are facing this year. One of the four tensions is that CEOs are prioritizing customer acquisition, but deprioritizing Marketing spend. This discovery tells us that CEO actions appear to contradict their strategic intent as they enter 2023. A clear tension between managing expenses drives this and the three other contradictions amid recession uncertainty and appropriately timing the recovery to capture returning demand. 

Perhaps not surprisingly, Marketing is the function most likely to see a decreased investment in 2023 among go-to-market groups. In fact, only HR and Property/Facilities among all corporate functions are more likely than Marketing to see a budget reduction.

This decrease is partly driven by significant leadership uncertainty regarding Marketing's ability to deliver. According to our survey, nearly 70% of CEOs and go-to-market leaders are Neutral to Highly unconfident in the CMO's ability to drive commercial success for their organization.

While Marketing attribution is generally obscure, and the survey data hardly shows confidence in Marketing leadership, our advice to CEOs remains. They need to consider resisting the temptation to slash the Marketing budget. Strong demand generation programs are critical to driving commercial productivity in the near term. The CMO can only run a strong demand gen program with appropriate funding.

At the same time, our advice to CMOs is that they need to take swift, decisive actions aligned with the CEO's value creation strategy. They need to position themselves as a strategic advisor to the CEO and give them clear visibility into the value of Marketing, especially in a down market.

So, where do CEOs expect Marketing to align with their growth strategy in this market?

• Reduce Churn
• New Customer Acquisition
• Drive Commercial Productivity

Reduce Churn

In uncertain markets, the first priority is to keep loyal customers, prioritize their solutions, and do what it takes to reduce churn. And go-to-market leaders are indeed focused there. More than 60% see increasing customer retention and reducing churn as critical to their success for 2023. To help reduce churn, Marketing can develop and execute customer marketing motions aimed at customers entering typical churn windows and other churn behaviors (i.e., X# months of remaining contract, decreased usage, unresponsive to BD efforts).

New Customer Acquisition

We were surprised to find that, on average, go-to-market leaders expect 42% of their net new bookings in 2023 to come from new customers (see chart at right). In a down market, this percentage is a highly ambitious expectation. While attractive to investors, this percentage leaves teams wondering how they will get there. And remember, given the heavier focus on earnings and overall productivity, customer acquisition costs will need to remain modest.

One comprehensive strategic imperative is to activate and enable indirect channels to improve scale and reach, deprioritize unproductive relationships, and over-index the healthiest and highest-potential partners. 

Drive Commercial Productivity

Although CEOs' responses indicate that commercial productivity is a priority, their actions show that they are not making adequate investments for a strong pipeline to drive that productivity.

CEOs need to evaluate their investments across the customer acquisition funnel, and the CMO is a valuable resource to help. The CMO can highlight where investments are necessary to direct and support the sales team to focus on prospects closer to conversion. They can also show through more targeted ABM, driving qualified opportunities with higher win rates and shorter sales cycles. Finally, CMOs provide critical insights into where buyers and sellers are getting stuck and provide solutions to remove friction.

CEOs and their go-to-market leadership teams are entering 2023 with one word on their minds: uncertainty. With that uncertainty, cost-cutting becomes an initiative. If CEOs are ready and willing to cut Marketing budgets, it's a call to action for CMOs to be more productive in demonstrating alignment with the business strategy.