How to Build Your Marketing Budget for the First Time or the 100thAndrea Lechner-Becker / November 13, 2020 / 0 Comments
Of all the courses missing from a modern marketing curriculum, the absence of a Marketing Budgets 101 course is the one we’re addressing today. Most marketers learn how to manage their budget from a few select sources: their boss, peers, vendors or trial and error. My aim with this blog is to provide the basics for first-time budget managers and actionable tips and tricks for experienced marketing leaders.
Step 1: How much money do you have to work with?
Even if you aren’t part of the budget-setting process, you should still prepare to advocate for your ideal marketing spend. It can be helpful to create a mock budget and projected ROI to share with your executive team to ensure that your budget targets aren’t miles apart. Remember that most CEOs do not come with marketing backgrounds and experience. Therefore, your role may be to educate them that marketing is an investment. Investments have payoff. The more you invest, the more you make.
So, how do you find that magic number?
Allocating a fixed percentage of your revenue is one of the most straightforward ways to set your marketing budget. Of course these things are never an exact science, but you can use industry benchmarks and a few general rules of thumb to start. For example, this report from cmosurvey.org talks about expected marketing spend increases. They report the average spend fluctuates between 4% and 10% of revenue. B2B businesses usually find allocating 7-8% of their revenue to marketing works well, although the younger your business is, the more you will likely spend, and vice versa.
Andy Jolls, an experienced CMO, wrote this great LinkedIn article about all the different ways to find your perfect budget. In this article, he also links to this budget calculator –– it is specifically built for SaaS companies, but it is helpful for all industries as a data point.
Step 2: What are your company’s goals?
As Andy mentions in his article, the overall goals of the organization should guide where you invest. If your organization is new to an established market, your investments to create brand awareness will be very different than investments if your organization were attempting to create a new category, like consumer space travel.
Document your go-to-market goals in their simplest terms: brand, demand generation, channel, etc. Start a spreadsheet, listing those goals as columns. Then start some quick, back of the napkin math on what percentage of your overall budget you want to allocate to these specific areas. It’ll look something like this:
Allocate Percentages to Major Spending Areas: How do you determine marketing budget for headcount vs. technology vs. campaign spend?
With an estimate for each strategic motion at least started, the next step is to determine how much to invest in your people, the technology they manage and, finally, the actual campaign budgets to put your company in front of your prospects. Again, using the simple baseline set in the calculator above, we’ll use 40% to head count, 10% to technology (although this can vary dramatically) and 50% to campaign spend. That ends up looking like this in our spreadsheet:
From here, the easiest place to start validating whether these numbers will accomplish the goals of the organization is in demand generation. If you know you’ll have $1,250,000 to spend on campaigning, you can do a quick cost per lead calculation. If your average cost per lead is $250, you’ll get about 5,000 leads with that budget. If historically you’ve converted 10% of leads to closed won opportunities, you’ll have 500 deals from that spend. And finally, if you take your average selling price (ASP) and multiply it by those 500 deals, you’ll have a revenue impact. Let’s say your ASP is $50,000. This means you’ll have demand generation revenue of $25,000,000.
Is $25,000,000 in revenue enough to meet your goal?
If not, that doesn’t necessarily mean these larger numbers have to change. You could maintain these breakdowns, but decide to focus your headcount and technology spend on improving conversion from 10% to 20%. That simple shift doubles your revenue to $50,000,000.
Recommended Marketing Budget Categories
Once you’re satisfied with these large buckets, it’s time to dig into the specifics. Although it makes sense for you to consider the go-to-market motions as buckets to allocate funds, in your actual budget they don’t make as much sense. So, from here, you’ll want to get into the specifics by spending area. Remember those are technology, head count and campaign spend. Meaning, now you’ll take your budget and look at it through those horizontal amounts, keeping in mind which go-to-market objectives you need to support holistically.
I’ll give some quick examples in each spending area.
For technology, you are likely to use a marketing automation platform across all three go-to-market priorities. A system like Marketo will manage your inbound lead flow, nurturing them on their way to sales. But it can also help with channel by managing communications to partners or distributors. And it can help manage brand through consistency in look and feel, but also with market-facing assets, like microsites.
For headcount, we all know that every marketer is asked to wear four different hats. So, although you may want someone completely dedicated to demand generation, it’s possible they will also need to manage demand from channel partners on social media as well. As Andy mentions, the size of your team is often a bi-product of goals, the size of your company and various other factors. But generally speaking, if you have a team under 10, you’ll need folks to serve multiple purposes and drive multiple key results. After 10, you likely have the budget and company goals that substantiate deep subject matter expertise in specific functions like social media or email marketing.
For campaigning, I recommend you itemize this by the channel. This means you will likely have paid social, search advertising, content syndication and trade shows as line items in your budget. Use all these types of vehicles to get your message in front of prospects channels. If you consider search advertising, any of those go-to-market motions could engage via your investment in this channel.
The Nitty-Gritty: Budget Categories
From here, it gets harder to write a piece that’s relevant to everyone. Some companies survive almost entirely through search traffic converting via free trials or ecommerce on their site. Some companies source 80% of their deals through partnerships, where they’re using MDF money and rep relationships. But here are the categories (and therefore channels) we see most marketers using:
- 1st Party Research
- Social Advertising
- Display Advertising
- Search Advertising
- Website chat
- Organic Social media
- Organic Search
- Public relations
- Event marketing
- Content marketing
- Content syndication (if you have questions on this channel, I wrote this piece to explain it)
- List purchase
Notably missing, because I haven’t included these functions above, but not to be forgotten:
- Product marketing
- Customer marketing
- Sales enablement
How much money do you allocate to certain marketing channels?
This is going to sound like a cheap answer, but the best advice I can give you is this: Use historical data and test it one quarter at a time. If you have no historic data and your sales cycle is longer than three months, you’re in for a long road. Frankly, you are going to waste and lose money doing things that don’t work, or seem like they work in the short-term but don’t in the long-term. Make sure your leadership knows this and won’t give up on you (fire you) when it happens. It will happen.
The best you can do is act, monitor and optimize, report and optimize, adjust, and act again. Marketing is equal parts science and art, data and instinct. Be diligent about optimization and you’ll be okay, even if your first quarter is terrible. Don’t be too proud to admit your best guess was way wrong. Protecting your ego will only hurt you and your company in the long-run.
Leave Some Room
Don’t be tempted to simply copy a previous budget, adjust some numbers and call it a day. You should use the results you achieved this year to inform how your next year’s budget is adjusted. Also, add in a line item for experimentation. You may test your marketing plan and find part of it isn’t serving you, or you might learn about a new approach that looks worthwhile. Leave yourself a little bit of wiggle room for creativity and testing new ideas. Even if you don’t end up using it, you can put it toward whichever tactic each month has produced the best results.
Finally, especially in light of how 2020 went, map out three tiers of budget guidelines. None of us know what types of economic and industry fluctuations will take place in the next year, so having a conservative budget, a realistic budget and an aspirational budget will help you adjust more quickly, come what may.