How should CMOs prepare for ‘anemic budget growth’ in 2025?

The marketing industry is in an “era of less,” says Ewan McIntyre, chief of research and vice president at the analyst firm Gartner, with budgets still significantly lower post-covid than pre-covid. “Chief financial officers have gotten used to a situation where budgets are lower and we’ve gotten used to it, so why can’t we just continue?” According to Gartner research, average budgets dropped from 9.1% of company revenue in 2023 to just 7.7% in 2024. He referred to this as “anemic budget growth” for the year ahead.

There are multiple conditions creating a “lingering uncertainty” for businesses. The UK economy is still struggling and tough trading conditions mean that businesses will still be prioritizing productivity over activities that focus on scaling. “We might not see budget growth going into 2025 because there is a pressure to drive growth in a more productive way,” he explains. “Then, when you throw a bunch of macro-economic factors into the mix, this is not super solid ground for strong budget growth going into 2025.”

Another potential hit on budgets, McIntyre adds, is that chief financial officers are expecting generative AI to “significantly” cut marketing’s cost base, but that hasn’t happened yet. “CFOs are anticipating potential cost-cutting opportunities from Gen AI which are not being played out in the use cases of Gen AI in marketing right now.”

Like McIntyre, James McDonald, Warc’s director of data, intelligence and forecasting, acknowledges that many of the major advertisers are still in a difficult trading environment. “GDP figures show that the economy is still flatlining and that is really being felt on the ground, both by businesses but also by consumers – the cost of living crisis hasn’t just gone away overnight and advertisers are aware of that,” McDonald says.

The UK’s gross domestic product shrunk for a second month in a row – by 0.1% in October and in September, surprising economists who forecasted the economy to grow by 0.1%. “There are still a lot of headwinds in the market and advertisers are reticent to spend, particularly on high ticket media such as TV and out-of-home,” McDonald says.

When asked how Warc would advise marketers to navigate budgets for the year ahead, McDonald says all his research suggests spending their way through. “It’s easier for me to say because I’m not a practitioner having to fight for budgets,” he acknowledges. “But all of Warc research shows it’s far more damaging to go dark or to switch to performance media. It’s better to maintain the course, be brave and continue investing in building your brand.”

Taking a more optimistic view is Barry Dudley, who is a partner at Green Square, a company that provides corporate finance advice to ad agencies. He is seeing brands “unlock” more budget for marketing in 2025 now that politics in the UK and US feel more certain.

Dudley had heard from agencies before the autumn budget that brands were holding back from spending with them till after chancellor Rachel Reeves announced the details. “Just having the budget out of the way, just literally having it gone and done, irrespective of what came out of it, removed an uncertainty that I know from talking to my clients, that budgets have been unlocked so people that held back.”

The same situation happened after the US election, Dudley says. The moment Donald Trump was elected president it unlocked budgets again. “Very close together you had two things that had held the US and UK back – our budget, their election. That means that as we run into next year, things are looking better.”

The IPA’s last quarterly Bellwether survey, which is used as an indicator to whether marketing budgets will increase or decrease, has forecasted that adspend will be up in 2024 from a 0.6% uplift in 2024 to a 1.3% boost in 2024. This data supports what Dudley has heard from agencies.

“When there is nervousness in your own market, unlocking them means that we should enter next year quite a lot stronger and with a lot more certainty,” he says.

John Arnold, principle analyst at the consultancy Forrester, warns marketers not to make plans that rely on budget increases to power marketing performance in 2025. Instead, CMOs should be focused on making the right investments and divestments and identifying worthy experiments.

He recommends benchmarking current spending. “Make sure your program, personnel and technology investments are allocated in the right proportions for growth,” he says. Arnold tells marketers: “Divest judiciously so that you can free up budget for investments.” The question this year isn’t whether or not to cut; it’s where and when, he says. “One area ripe for revisiting is marketing plans. Don’t spend time and resources building complex ones that comprise lists of activities that rarely align to business objectives.”

Finally, he says in the coming year, it will be important to “test before you invest” in a few key areas. “Identify the best opportunities to experiment, even though budget is tight.”