Demystifying the Marketing Budget Decision

by Debra Andrews | October 7, 2020

In many B2B companies, the marketing budgeting process goes something like this:

Around September or October, the head of marketing (and every other department head) receives a copy of the current year budget and a request to “update the numbers for next year.” The new budget numbers are due in two weeks. But marketing hasn’t even started developing a plan for the coming year. So, they do the only thing they can do: Roll the same budget forward for the following year, maybe with a tweak or two.

Sound familiar?

When marketing budgets are approached this way, the odds of your marketing fueling substantive, measurable results (like revenue growth) become slim.

For B2B companies that are serious about leveraging modern marketing to drive aggressive growth, the decision on how much to spend should be thoughtful, methodical, and grounded in data.

It Starts with Goals

At its core, marketing should be an investment in the strategies and tactics that will enable you to achieve your business goals. Unfortunately, the marketing budgeting process isn’t always approached from this perspective. Sometimes the leadership team sets aggressive goals for growing the business, with no corresponding commitment to a sufficient marketing budget. Maybe the company is in a merger-and-acquisition mode, but the marketing spend doesn’t reflect that strategy. Or the business is developing lots of new products and services but hasn’t taken that into consideration when setting a marketing budget number.

Some B2B companies ignore their business goals altogether when setting a budget and instead rely on a percent-of-revenue approach. You’ll see lots of statistics out there on what percentage of revenue a company should spend on marketing—and the numbers vary widely. Should you spend 5% of revenue? 8%? 12%? While a magic number would make things nice and easy, the truth is, it depends on many factors, one of the most important being where your company lies along the marketing journey.

If You’re Already on a Modern Marketing Journey…

Companies that are employing marketing to drive a measurable return on investment—what’s known as modern marketing—are likely to have a wealth of data to draw on in developing each year’s marketing budget. That data enables you to take a top-down approach to budgeting: Defining the business goals, determining the right marketing metrics of success, and then “backing into” a budget number that will enable you to hit those targets.

What type of goals and metrics should drive the marketing spend decision for a company that’s already using modern marketing to generate leads? The following list is a good start. (And if you’re not already tracking these metrics, hopefully the budgeting exercise will move you in that direction! Without quantifiable goals, you can’t accurately assess whether your marketing is working.)

  • What is your revenue growth goal for the coming year?
  • How many new customers do you need to acquire to achieve that revenue goal? This number will be affected by metrics like average revenue per new customer, average revenue per retained customer, and customer retention rate.
  • Are you looking to increase the average revenue per customer? If so, by how much?
  • How many leads will you need to generate to acquire the number of new customers you hope to add? This number will be affected by your marketing conversion rate, both overall and by individual marketing channel.

This type of approach works best when you’re already approaching marketing as a lead generating activity and using marketing analytics to gather the data needed to evaluate how well your marketing is performing. It’s also a great way to look at what-if scenarios and determine how a higher marketing spend could translate to a higher ROI.

If you don’t have a specific revenue growth goal to work from, you can use the same metrics outlined above to take a “bottom up” approach to developing a marketing budget: Determine how much you’re willing to invest in marketing, then calculate how much revenue growth that level of marketing spend will enable you to achieve.

If You’re New to Modern Marketing…

Companies that are new to modern marketing and haven’t yet approached it as a lead generation effort will need to take a different approach to developing a marketing budget. In these situations, the initial marketing investment needs to lay a foundation for long-term success.

While the company’s revenue growth goals should always factor into the marketing spend decision, the first 12 months of a new marketing effort really should be viewed as a foundation-building year. In Year 1 of the marketing journey, it’s important to focus on four foundational elements:

  • Developing a strategic marketing plan
  • Staffing your marketing talent (whether in-house, outsourced, or a mix)
  • Selecting and implementing marketing technologies and other infrastructure
  • Establishing marketing best practices

When developing a foundational marketing budget, be sure to cover every step in the buying journey (also called the revenue funnel). Some B2B companies make the mistake of only funding marketing activities designed to build awareness. But awareness-building only supports the early stages of the customer’s buying journey. Incoming leads need nurturing throughout the buying decision—through critical stages like consideration, intent, and evaluation. If your budget only funds awareness-building tactics, you’re missing the boat.

It’s also essential to budget for marketing efforts aimed at both acquiring new customers and retaining existing customers. That’s especially important for B2B companies, where the typical customer relationship is likely to span several years and generate even more value over time.

Admittedly, investing in a Year 1 marketing foundation can be a scary proposition for some leaders. If you’ve never invested in marketing with a goal of growing your business, spending that money may make you a bit uncomfortable. Here’s where it pays to have a strong marketer guiding your planning.

Whether it’s an in-house senior staff member or a consultant, an experienced marketer can guide you on the best decisions when it comes to setting a marketing foundation. Whether it’s guiding a branding program, developing a lead-generating website, or choosing and implementing marketing automation, a marketer who has “been there, done that” can save significant time and money in getting modern marketing off to a strong start. Think about it: You wouldn’t attempt to climb Mount Everest for the first time by yourself. Embarking on a marketing journey for the first time is no different. Relying on an experienced marketer will enable you to avoid costly missteps and get you on the path to generating more revenue faster.

If you build a solid marketing foundation to start, it will pay for itself many times over by creating leverage. When you invest time and resources in marketing assets you can use over and over—including effective marketing technologies, efficient marketing workflows, and lots of evergreen content—you set the stage for achieving a higher marketing ROI on the same level of investment over time.

Metrics Matter

Whichever camp you’re in—whether you’re just getting a modern marketing effort started or you’re well underway on this journey—don’t underestimate the importance of setting aside budget dollars to invest in marketing analytics.

Marketing analytics uses data to determine how your marketing is working and measure its impact on the business. And that’s precisely what you need to know when you’re investing in a marketing program. By using marketing analytics, you can assess marketing’s impact on the business and continually refine your approach to yield stronger results.

An analytics-based approach also enables you to view marketing budgeting in a more fluid way. Once you’ve moved beyond the foundation building of Year 1, you can use analytics to assess your results, learn in real time, optimize your efforts, and determine how much to spend on marketing (and where to best spend it) going forward.

One Final Note…

In the budgeting process, the lines may become blurry between what elements are truly marketing and what elements start to veer into sales enablement. In fact, it’s common for sales leaders to try to include sales support items in the marketing budget. But that weighs down the marketing budget without generating a corresponding ROI, which skews the results.

Take a cold, hard look at each item you’re asked to fund in the marketing budget. If it supports the marketing funnel (and your overall strategy), then include it in the marketing budget. But if it’s part of the sales funnel, kick if back to sales. That way, you’ll end up with a marketing budget the marketing team can be truly accountable for.   

Need help developing a marketing budget that reflects your goals and sets you up to drive strong results? Call on the experienced B2B marketers at Marketri! We’re experts at guiding B2B companies on developing marketing budgets and strategic marketing plans that yield a high ROI.  

Want to learn more about applying your budget in the days of modern marketing? Download our CEO’s Guide to Modern Marketing.