A Different Approach to Marketing Spend Analysis

A spend analysis is an incredibly useful tool for improving visibility into spending across an organization and managing costs. However, when it comes to the Marketing category, the typical spend analysis process does not always provide the level of detail needed to make informed decisions for managing your Marketing investments. When done properly, a Marketing spend analysis can help identify redundancies in your agency network, opportunities to decouple services, and ensure that your agencies are able to support your future states goals and objectives. The spend analysis methodology must be adapted for the nuances of the category in order to have the greatest impact.

A standard spend analysis process includes the following four steps:

1. Gather Data

To begin, you collect historical spend data from GL reports, invoices, AP reports, and other sources that provide visibility into the suppliers where dollars were spent in the timeframe you are analyzing.

2. Cleanse Data

From there, you will cleanse that data to remove duplicate entries, ensure consistency in supplier names, and make sure the data is in a format that can be easily analyzed and manipulated.

3. Categorize Data

Once the data is cleansed, you will begin categorizing the suppliers based on a pre-defined spend taxonomy. As a best practice you want to make sure your categories are not too specific so that they can be applied across multiple business units, geographies, etc. Depending on the process you are following, you may be limited in how many categories can be applied to a single supplier – especially if your data doesn’t have line-item detail to breakdown the spend based on actual purchases.

4. Analyze Data

Finally, you will review the categorized spend data to identify trends in spending habits, highlight top suppliers, leverage the data for budget planning, or support other activities related to the spend analysis.

So where does Marketing deviate from this process?

First, “spend” meaning historical spending is not the best point of reference in predicting how Marketing dollars will be allocated in the coming year. The advertising landscape is constantly changing, and Marketing groups are continually evolving how they are engaging with their customer base to keep up with these changes. This could mean changing how budgets are allocated across digital vs. traditional channels or investing 75% of the budget in a rebranding initiative. Therefore, you should work with the Marketing group to understand their goals and strategies for the coming year and rely on budgets as the primary input for your assessment.

The next major difference comes during the categorization process. There have been many times when reviewing clients’ spend data that I have seen categories like “Advertising Expense” or “Marketing Materials” as the final categorization for Marketing spend. While you want your categories to be generic enough to encompass multiple relationships, the categories should also show the breakdown across activities. It is important to tie your categorization back to how agencies are being used, by adding subcategories within the Marketing/Advertising category that are tied to the tactics and activities that the agencies are performing.

Along the same lines, oftentimes there may be a limit to how many categories can apply to a single supplier; however, an Agency of Record (AOR) could be supporting multiple activities across various channels. To gain visibility into how budgets are being allocated with each agency and to have a holistic view of the services each agency is providing, it is important to categorize an agency based on the scope of work they are providing. By setting a limit on the number of categories/subcategories that can be applied to an agency, you are limiting your ability to fully understand how your agency network is being utilized across brands, departments, channels, etc.

While these may not seem like drastic deviations from the standard spend analysis process, they will have a significant impact on your organizations ability to act on the results from the exercise. A Marketing spend analysis should be leveraged to understand what agencies are being used today, how they are being used, and if they have the capabilities to support your organizations future strategies. By making these changes – relying on future strategies/budgets and capturing the scopes of work performed by each agency – an organization will be better equipped to realize these goals.

Contact us today to learn more about how we can help assess your organization's Marketing spend.