Strategic budgeting: the targeted and controlled use of resources

by Alberto Aleo

While doing my military service in Italy, I served with the Engineer Corps and throughout training and beyond, we were continually instructed on how efficiently managing supplies, together with the targeted and controlled use of resources, can decide the outcome of a conflict. There is a whole range of literature illustrating battles won thanks more to an effective procurement strategy than the actual fighting. One need only consider siege techniques (or nowadays the use of embargoes), or conflicts waged in hostile territories, such as deserts.

If we change the context from military crises to the crisis of the markets, where resources are scarce, the focus will shift to the management of money and time.

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In times of crisis companies often make cuts indiscriminately without performing a strategic analysis that includes a serious investigation of the relationship between goals, the resources required, and results.

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In the more advanced markets there exist professional figures (often from the world of marketing) whose business card refers precisely to “strategic budgeting” – or something very similar. The task of such experts is to study the most efficient use of resources to gain optimum results. 

On the other hand, in Italy companies still lag behind in this sense, and the result is that when the poor salesperson attempts to present a product or service that could really improve a company’s ability to effectively attack the market, the reply they most commonly hear is: “we can’t afford it”.

Let’s see how and where it is possible to recover investment resources, both to refocus our customers’ attention on the efficiency of their processes and to move beyond this feared objection. Given that my line of work is as a consultant in marketing and sales, I will consider the processes relating to these two areas, but you may also consider other business sectors.

Marketing and sales activities have different purposes, but we can summarize them in the following main objectives:

• to be recognizable on the market and to be easily located by customers;
• to find new customers;
• to maintain a relationship with customers over time;
• to transform negotiations into orders, in the fastest and most efficient way.

Obviously, all these activities are accompanied by costs that we could summarize as follows:

• promotion costs;
• generation of new contacts (or new business);
• relationship costs (or loyalty);
• negotiation costs.

The quality and quantity of each of these items depends on the market in which the Company operates, its offer system and the type of organization.Costs can therefore vary greatly from one environment to another, but whatever the Company, such expenses must be covered or the enterprise will fail. Some of your customers may argue that by avoiding investments in marketing or advertising they incur no promotion costs, or even that their customer base is so well consolidated that they do not need further outlay to maintain a stable relationship. But, is it really so? Let’s investigate further…

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If you have a travelling salesperson, even if this person is in fact the entrepreneur him/herself, all travelling expenses actually fall under the heading of ‘promotion costs’. If you have someone answering the phone when a customer calls, the costs incurred for that member of staff is a ‘relationship cost’.

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What I’m saying is that many companies make investments of the type listed above without (almost) realizing it, or worse, losing sight of the goals/activities that underlie such investments. This “distraction” means they fail to assess the effectiveness of such activities and miss the opportunity to improve them by releasing resources for new investments.

Photo by Towfiqu barbhuiya on Unsplash

I will give an example by referring to the activity of generating new business contacts. Let’s try asking our hypothetical entrepreneur how much it costs to find new customers. It is a complex but fundamental calculation, which must include the costs of the sales staff and the travelling time and expenses they dedicate to each prospect before the first purchase order is made. Once the “activation cost” has been defined, we can start looking into how it may be reduced. How indeed, as we cannot fire our salespeople or stop them from moving around as required? This is why we need the aid of a budget strategist – an expert in managing scarce resources. We can reduce activation costs, for example, through:

• more closely targeted activities in the field, through proper market profiling;
• the activation of contact management tools designed to handle the first approach phase and involving salespeople only once prospects have shown interest;
• a more targeted and interactive communication strategy that enables prospects to select their requirements themselves or to encourage them to initiate the first contact.

These are some of the actions that can be performed, but of course they all involve additional investments. So, what’s the solution?

Photo istock

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Strategic budgeting is about calculating how much an investment in a new activity or tool may actually generate savings that equal, or are greater than, the amount invested.
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It is a matter of budgeting the company’s strategic activities (in this case the new business) taking into account even the costs most deeply hidden and trying to figure out, item by item, how much the new investment will repay the initial costs and then generate further savings and increase efficiency.

Every good salesperson should understand the basic principles of strategic budgeting, so they will be able to present more than a product or service to their customers, but an actual Investment plan that places their offer at the core of a project to generate significant economic savings and improve performance. This is the only way the objection “we can’t afford it!” will transform from an insurmountable hurdle to an opportunity for dialogue and (hopefully) sales.

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