We often get asked “whats the best way to calculate how much marketing should cost?”Â and having been client sideÂ I know how challenging it can be to make a request for budget, especially if you need an increase. This is where marketers have to step up to the plate to make what they do tangible and quantifiable. It’s aboutÂ not only accurately working out what your budget and resources should be, but how, at the end of the year, you plan to demonstrate how you performed in response to that budget.
Budget proposals should always take into account implications, of either doing too much or too little. Think about it, if you’re planning a demanding sports performance such as a marathon or a triathalon you need to spend a lot of time analysing what you need to get the results you want, and evaluating the impact of not doing those things. If you’re applying for sponsorship for your sporting performance, you need to communicate the implications of not investing in particular resources, and clearly set associated expectations.
If you don’t do this, it’s only possible toÂ have a vague idea of whether or not you’ve done enough to generate the results that you need. B2B Marketing is not any different, and if you’re at all running into issues with the business not taking marketing seriously, then it’s even more crucial to do this properly.
B2B Marketing budget levers:
1. Revenue targets
An in depth understanding of the revenue targets for the business will begin to give you an idea of the scale of the marketing you’re going to have to execute. However it’s not enough to just take the overall revenue target. Ask what portion is going to come from existing contracts and existing customers. Marketing may well be involved in marketing to existing customers, so you’ll need to take that into consideration, but you also need to know what net new business the company is trying to achieve. Then, what portion of that net new business is expected to come from Marketing? Sales will generate some volume of revenue, but what is marketing expected to achieve?
If you can then further break this down into product lines and/or target audiences, that’s even better, as it will illustrate where to prioritise your marketing resources. The next step is to then work out what the average sale price is across your organisation, or per business unit if that makes more sense. If there are huge variations in your ASP, then Annual Customer Revenue can be more appropriate.
2. Lead definition
It’s as good a time as any to sit down and create some concrete definitions of what a marketing lead looks like, and to talk to sales to determine how they define a lead/opportunity. If you use the AIDA model (Awareness, Interest, Desire, Action) you can categorise your lead levels by user behaviour at different levels of engagement. This makes it more objective as opposed to subjective, and harder to dispute. Examine your typical conversions between those lead levels and attach a ratio to each conversion, use these conversions to work back to how many leads you think you’ll need to support each stage – eventually all the way to close – to that magic number of RFPs needed to close the right number of deals.
3. Cost per lead
The first time you do this, I’ll be honest, it may not be particularly scientific. To be scientific requires in depth understanding of your cost of sale, cost of marketing and potentially cost of service. Realistically by the time you manage to work all this out in a larger company, your marketing year will be over. However you should be able, from historical activity, calculate the cost of acquiring a lead within marketing, and establish that as a benchmark for calculating your budget.
If you need more detail on how to tie all this together, along with other information, check out this article I wrote recently.