How To Allocate A Marketing Budget

Posted on January 8th, by admin in Presentation. No Comments

One of the most common questions that we hear from clients and potential clients ranging from small businesses to 3 Billion dollar enterprises is “How Big Should My Marketing Budget Be?” It takes money to do great marketing and each year budgets need to be defined, so how much is enough?

Q.  How much of a budget is reasonable?

A.  How much money do you want to make? (Don’t say lots)

There are two ways to arrive at a marketing budget:

  1. Use a rule of thumb based on forecasted sales
  2. Use a calculated approach

The first is simple and quick, but not very accurate. The other is much more exact, but takes a bit more work to figure out. Let’s examine them:

 

Back Of Napkin Approach

 

On average companies spend on between 3% and 7% of revenues on marketing. Smaller firms have lower revenue, so they invest a higher percentage of their total revenue in marketing. So a $10,000,000 firm could expect to have a marketing budget of around $700,000. But a billion dollar firm would expect a marketing budget of around $30,000,000. This approach gives you a rough guesstimate of what the budget should be.  This approach may work if you are the owner of a small business and want to get a rough idea of how to allocate funds, but most CMO’s won’t want to walk into an annual budget meeting with the board with this sort of data to back up their funding request.

 

Calculated Method

 

This is what I call a “How many leads do you to meet your revenue projections” approach. “Click here to download a Marketing Budget Calculator that will help you to allocate a budget. Using this method, you answer a series of questions including:

  • What is your company’s gross sales revenue target?
  • What percentage of sales should come from marketing leads?
  • What is the average sale size?
  • What is the average percentage of sales opportunities your company has won in the past (don’t overestimate this number)?
  • What percentage of your inquiries (marketing responses) will become qualified leads (again, use historical data)?
  • What is your marketing response rate?
  • What is your cost per marketing contact (touch)?
  • How many salespeople need to receive leads from marketing?

Download the spreadsheet and complete with your answers. The marketing budget will be calculated for you.  Using this calculated approach your business will be able to accurately project the amount of money to spend on marketing to meet your revenue projections.

Let us know if you have any questions on how best to distribute your marketing dollars.





Leave a Reply

Protected by WP Anti Spam