Your Budget Model Is Killing Your Business
March 27th | 2018
Heather Hinkel

There are false dilemmas everywhere in our lives:

Do you prefer planning ahead or being spontaneous?
Are you socially liberal or fiscally conservative?
Are you for us or against us?

And the world of business is no exception:

Do you want to target men or women?
Are you investing in impressions or experiences?
Do you spin off a new brand or reinvent the current one?

In society, these false dilemmas have a significant social cost (e.g., either arm teachers or students die). In business, these false dilemmas have a significant opportunity cost. In both cases, they fool you into a false sense of security, steer you away from caring about meaningful interactions, and cost you money you should be spending elsewhere.

In business, the worst offender is one that’s costing many brands their ability to succeed: the division between working and non-working dollars.

It’s pretty common to divide marketing budgets into working and non-working dollars. The idea is that your spending is either working (delivering impressions), or it’s non-working (overhead). Working dollars are usually defined as hard costs to media vendors – paying for commercials or banner ads that give you a certain number of views or impressions. And non-working dollars are everything else – things like production, design, and agency fees.

So, if working and non-working dollars are really a functional dichotomy, you’d expect to see the most successful consumer brands investing in working dollars. But, in fact, some very successful brands put almost none of their money into working budgets (Costco, LuLuLemon, Spanx, Zara, Trader Joe’s). Does that mean that 100% of their dollars aren’t doing any work?

Of course not. Because the working/non-working dollars model is obsolete. It’s the floppy disk of marketing.

The working/non-working dollars model is obsolete. It’s the floppy disk of marketing.

In fact, it dates back to a time before there were laptops or cell phones, before social media, mobile phones, or Netflix. The world has changed so much since then. It’s become a digital-first, fragmented landscape that everyone in marketing has been scrambling to keep up with. And in many ways, we’re doing a great job. We recognize that relationships are at the center, and we need to bring real value to people’s lives. But here we are, still turning to an outdated model for the one part of the business that holds all the power – the money.

Even within organizations who use non-working and working dollars as categories to define their budgets, most people don’t understand what they mean. We’ve had conversations with many clients who are never given clear definitions of the categories, and therefore are forced to define them on their own, moving costs back and forth as necessary to accommodate their personal points of view.

Meanwhile, the bar for successful marketing moves ever higher. Consumers no longer respond to media that talks at them and gives them nothing in return. Instead, they want real value – value that comes from experiences, engagement, access, and personalization, rather than from media spend. Because value is welcome in people’s lives. It’s fun. It’s helpful. And it almost never fits into traditional definitions of working and non-working dollars.

So, if you’re still using the working/non-working model (and there are a lot of you, because it’s deeply ingrained in business culture, and it’s hard to find alternatives), what are you supposed to do when you need to set budgets for the year, prioritize your marketing spend – or make cuts?

Here are two models to try, both of which invite you to step away from the working/non-working model and use what you know about your objectives to prioritize your budgets in a way that makes sense for your business.

Two models that step away from the working/non-working dichotomy:

Model #1: Best for Business

What it is: This model puts your key business objective first, helping you prioritize the initiatives that deliver on it the best, and are therefore worth their cost.

What to do: Plot all marketing initiatives and their associated costs against your top two business objectives. Then, when you’re making budget decisions, cut the bottom two quadrants first, since those two quadrants are lower priorities.

Model #2: Best for Consumers

What it is: This model prioritizes the most valuable consumer interactions while still considering your key objectives, helping you find initiatives that deliver against both the consumer’s point of view and your business needs.

What to do: Plot all marketing initiatives against both their level of engagement with consumers and your top two business objectives. Then, when you’re making budget decisions, cut the bottom right quadrant first, and the top right quadrant second, since neither of those quadrants deliver meaningful interactions with consumers.

The bottom line is this:

Instead of making a line-item budget with working and non-working dollars, what you really should be doing is evaluating your actions and initiatives against your larger objectives. After all, what really matters to your business is your goals, and to achieve them you have to take effective actions. It’s a simple matter of isolating your real priorities, measuring what you’re doing, and making sure that you’re cutting your least effective actions first.

And that’s all there is to it. It’s almost ridiculous how simple it is. The hard part is getting management to see it that way.

But with the speed at which the landscape of marketing, brands, and culture itself is changing, you (and your management) can no longer rely on outdated models to lead the way. The only clear path forward is the one that makes your brand a force for good in your consumer’s lives. The only clear path forward is the one that forces each of your actions to speak for itself. The only clear path forward is to figure out what matters to your business – and spend your money on it.