As they say, any spend activity that you want to do needs to be budgeted. If it is on the budget, then it has a chance of getting approved. As we get towards the end of the financial year, a lot of companies would initiate a revenue budgeting exercise for the next financial year. As you do that, how do you go about defining marketing budgets for your business ? What percentage of the revenue budget should it be at? How should it be controlled quarter by quarter? How do you calculate ROI on the marketing budget spends? We will aim to answer or give some perspectives on some of these questions through this post. You might also want to read Get started and drive growth leveraging Digital
How do you go about defining marketing budgets for your business ?
Well, really, how to define marketing budgets depends on what stage of business you are in. We can broadly classify this as 3 independent stages, the early stage start-up, the growth phase ramp-up, steady state organization. Let’s look at some peculiar things across each of these stages.
Early stage start-up
In early stage, all the funds are either being spent by the promoters themselves or in case of funded start-ups, the spends are being heavily monitored by the investors. In both these cases, there is a tendency, not to spend heavily on marketing. At this stage, business acquisition strategy is heavily dependent on the kind of referrals and business connections, the promoters can bring to the business. So a company can afford to spend less on marketing.
Having said that, it is important to build a brand and awareness of the company. This is both, from a business acquisition point of view, as well as from a talent sourcing point of view. You should spend time on increasing your audience and following on different digital channels. This will help improve branding and will help your marketing process, once the referrals route starts drying up
Growth phase ramp-up
In the growth phase, typically organizations realize that they are running out of fuel in terms of referrals and business connections. They have capitalized on their contacts and for them to grow beyond the current levels, it is important to build credibility and relationship with people that they do not know.
In this stage, classically, the spends on marketing should go up significantly, as you need to do both, build awareness as well as support the sales funnel. In the growth stage, you need to do a mix of push and pull marketing channels. There needs to be a balance. Like the proverbial saying, never put all your eggs in one basket as you never know if the customers will be able to search and find this basket. It pays to have a multi channel strategy, yet, you should not dilute too much, because you need decent amount of budgets with the channels that you choose to be present in.
Steady state organization
In this phase, typically there is a good amount of awareness about why they need to continue spending on marketing and how they need to support building the top of the funnel and engage with the mid and bottom of the sales funnel. This resembles a mature marketing organization, which spends steadily on marketing and tracks the ROI of these initiatives closely.
One view was the stage the organization is in, to decide the level of marketing spends. The other way to think of as well is, how do you allocate budgets among the different marketing channels available. We already said that you should never put all your eggs in one basket. Then how do we distribute our budget spends across the different channels that we will decide to spend on. Before we get at some industry standard numbers, let us look at some of the approaches that are available to you in marketing.
What are the push marketing channels available?
If you classically define push marketing, you are trying to push something to someone, who may not be essentially looking for it. We continue to push, in the hope that someone will take notice and we can onboard them onto our sales funnel. Some of the common approaches used in push marketing are Email campaigns, Inside Sales (Telesales), List purchase to support Inside sales and email campaigns, Messaging on LinkedIn etc.
Push marketing will typically help you get leads. This is the monetize stage of the engagement with your prospects. Another way to look at this is that if you have not spent enough time building the brand and awareness, it will be pretty difficult to monetize that engagement and generate leads. Only if people know you enough, will they jump into your leads funnel. Otherwise, for the most part, they will ignore your messaging. It is no surprise that hit ratios in push marketing typically stays below 0.5%.
Why Pull marketing (or Inbound Marketing) and what you can do
You should invest more amount of efforts to help your customers find you. We are in the age, where almost anyone who needs something has avenues available to search how to get it. Then why do you expect it to be any different in B2B marketing? Some of the popular pull marketing channels include :
As simple as putting a blog to doing complex integrated campaigns involving premier content (like white papers, survey reports, eBooks), landing pages and significant efforts on marketing automation and drip marketing nurture campaigns
Traditional forms of advertising are too expensive, things like magazine ads, hoardings TV ads and radio ads. Also they will not provide you with an easy mechanism to gauge the ROI. Digital advertising channels like banners will provide you better metrics and ways to measure the ROI of the money spent. If you are advertising, what matters to you is what is the reach of the channel to your relevant target market?
You can use social channels like LinkedIn, Facebook and Twitter to help build thought leadership with articles, and posts and other things to engage the audience. You can also use paid advertising with these channels to reach your target market more precisely and keep optimize your campaigns to get you the desired results.
Using either search or display ads, you can target users, who are either searching for specific keywords, that are relevant for you or serve your ads on google ad sense enabled sites, that are being frequented by people in your target market. This can help build awareness and also help conversions. Using re-marketing, you can follow several people within your target market across multiple properties.
Search Engine Optimization
Until you start ranking on the 1st page of Google for relevant keyword searches, Google Ads will help you appear there. But being able to feature on the 1st page of a google search is something that you need to aspire for. It is a long process, but you need to start planning for it. You may not feature on the 1st page for all the keywords that you are targeting, but you can start featuring there will some keywords within a reasonable timeframe. And then you work your way to the top. Conquer the low competition keywords first and then you will slowly start climbing the ladder to the more competitive keywords
So we looked at two perspectives, the stage your business currently is in and a choice among different push and pull marketing channels, so then
What should be your marketing budgets across these stages and across these different channels?
As a thumb rule, it is good to have a marketing budget @ 5% – 8% of your annual revenues. For some companies this may even go as high as 10-12%. While we speak about these figures, you will note that several US based product companies spend upwards of 25-30% on marketing. This includes your marketing salaries and marketing travel. Plug that all into the budget.
If you are a start-up, then the marketing budgets cannot be a percentage of revenue, as there is hardly any revenue. You need to consider this as an investment. Sometimes, this can be as high as 25-30% of the revenue projected. A lot of the spends should be on the branding/awareness elements rather than on lead generation.
If you are a company in growth stage, then you can target a 4-7% of revenue on marketing budgets. About 30-40 % of this can be on branding elements and 60-70% will be on lead generation mechanism.
For an established and mature company, they can afford to have a 2-4% spend on marketing and almost 60-70% of this can be towards branding expenses and 30-40% on lead generation activities.
Also, one more thing, just because you have put together a budget sheet, does not mean that you will go ahead and spend that amount. It will be always subject to approval and a marketing budget will always follow the revenue budget that it is chasing. If the revenue budget is dipping, then marketing spends will also dip correspondingly.
So, where are you with your budgeting exercise?. Hope this post will help you, as you go about defining marketing budgets for your business. Having items on the budget really helps, as it shows a commitment that you are making for your own business.
Atul is Founder & CEO at Xenia Consulting. He has over 22 years of experience in marketing, across corporates as well as SME,start-ups. Over the last 5 years, he has gained significant expertise and has helped several companies drive growth leveraging digital marketing