Every demand gen marketer wants the same thing — more budget.
But before you can ask for more resources, you need to properly manage the budget you already have. That means figuring out how to allocate your money between all of your different channels to get the highest return on investment without overspending. Easier said than done, right?
We’re here to help you determine what your marketing budget should be, how to distribute and manage it, and ultimately how to advocate for more when the time comes.
How to determine what number to ask for
At big companies, your budget is often not in your control. The head of finance hands you a number to work with and leaves little room for negotiation. But at small companies and hyper-growth companies, they may ask you what you need. In that case, how do you know what to ask for?
First, find out how much revenue you are responsible for driving. Then, ask your finance department what the average selling price of your product is in a specific segment. Dividing those will tell you how many deals you need to win overall.
It’s a simple equation: Revenue target / average selling price (ASP) = number of deals.
From there, look at your past conversion rates to assess how many marketing qualified leads (MQLs) you need to deliver per segment to hit the forecasted number of deals. Historical data and the sales velocity formula will help you determine the blended cost per MQL.
Then, the blended cost per MQL x number of MQLs = your overall budget.
Let’s run through a more specific example:
- Say $500,000 (revenue target) / $10,000 (ASP) = 50 deals.
- If your typical MQL to win conversion rate is 20%, you need to generate 250 MQLs to land 50 deals.
- If an average MQL costs $100, then $100 x 250 = $25,000 in budget.
“The key is to make the number you ask for a function of what leadership asks you for first,” says Mitchell Hanson, director of demand generation at ZoomInfo. “As a general guideline, your budget should be 20-35% of your gross revenue target. Finance will typically be comfortable providing enough budget for a fivefold ROI.”
So, if the CMO wants your marketing department to grow by 20%, your budget should reflect that. You’ll constantly need to negotiate based on company or department growth targets.
How to allocate your marketing budget
Even if the head of finance gives you a budget number to work with, they’re not going to tell you how to spend it. Figuring out how to distribute your budget is your job.
“Allocation depends on what’s converting the best and what your priorities are,” says Lauren Temmler, senior demand generation manager at ZoomInfo. “Spend more money where you get more money back.”
Your hot leads (such as those who request a free trial) probably convert at a much higher rate than your warm leads (such as those who download an ebook). You may feel inclined to spend more money on channels that generate hot leads — which isn’t a bad approach. The flipside, of course, is hot leads cost more to generate, and you don’t want to blow all your budget in one place. You have to find a healthy balance.
Tip: If you have a fast sales cycle, you can often afford to pay more per MQL since you’ll see ROI faster.
Generally, paid social can be expensive but convert well. (You pay per lead, so the more you spend, the more you convert.) Webinars are more labor-intensive, but they’re inexpensive and convert well, too. Content syndication is less expensive but doesn’t convert as well. Email is free, but your reach is limited.
Your website is typically your best converting marketing channel, but it can take months to see that pay off. SEM can also be very high-converting, but is more expensive. The trick? Diversify your spending on different channels.
Your finance department will likely give you a limit on cost per MQL, which is why you can’t skew too heavily toward the more expensive channels. A good marketing budget mix might look something like this: 25% website, 25% SEM, 20% display advertising, 15% webinars, 10% email, 5% content syndication.
“Decide your breakdown based on the volume you get, the number of campaigns you’re able to execute, and your reach,” Hanson says. “Based on your go-to-market strategy, be sure you’re allocating the correct amount to awareness, acquisition, demand creation, nurture, enablement, and intelligence programs.”
Another important factor is unit economics, meaning a company’s costs related to a single unit of production. For example, cost per lead or cost per acquisition tells you how efficient your spend is. Sometimes you’ll have to choose between efficiency and growth — you can’t always have both.
“You have to look down the funnel all the way to these unit economics so that you can tune your mix appropriately,” Hanson says. “That’s going to be your checks and balances.”
Lastly, experimenting is essential to growth, and you should carve out a small portion of your budget for testing new channels. Don’t forget to leave room in your budget for piloting new methods of marketing.
“You need to have money that you can afford to lose. Sometimes you’re going to spend on things that don’t work and that’s part of the test,” Temmler says. “Just make sure you give it time to see the results.”
How to manage a marketing budget (and advocate for more)
Marketing budgets are usually set annually, with potential increases throughout the year. While more money allows for more flexibility, it also comes with more responsibility. You should avoid asking for more than you need because you’ll be expected to execute on that number, and you might not have the headcount or resources to properly manage it.
In order to manage your marketing budget you need to:
- Closely track how much you’re spending and where
- Advocate for a higher budget with proven results
- Allocate a small portion of your budget to experimentation
Let’s dive in further.
Throughout the year, be sure to track how much you’re spending and where. If possible, monitor it daily to see how it matches up to your forecasts.
“Meet with finance at least once a month,” Hanson says. “Discuss how much you spent, how much you should have spent, and how you’re pacing towards the end of the month or quarter. It’s all about alignment and visibility with the finance team.”
Frequent tracking is crucial to ensure you don’t overspend. Not only will overspending make finance lose confidence in you and reduce your marketing budget, but repeatedly overspending can be a fireable offense.
“This is especially true if you’re a public company,” Hanson says. “How much you spend can affect how investors view your company and stock price, especially in the fourth quarter when they want you to tighten things up and end the year looking really efficient.”
In the event you need more money, you have to advocate for a higher budget. How? With proven results. Prove that the money you’ve spent has led to sales or revenue growth. This will help build confidence that you can be trusted with more resources.
Remember that if you have a long sales cycle, you likely won’t see ROI for a while. You will need to be able to show early indicators of success, such as a strong ratio of pipeline to ad spend.
“In marketing, our job is to find the buyers,” Hanson says. “Show that you know how to find the buyers in the right places where you can spend more money and get incremental results with the same efficiency.”
Finally, when it comes to piloting new marketing ventures, always start off by asking for a small amount of money to play with. This way, if it fails, you won’t have wasted too much — and if it succeeds, you’ll have the results to ask for more.