Setting A Marketing Budget To Achieve Your Growth Goals
Intergage has been in the marketing business for more than 20 years. In those 20 years I have spoken to many businesses large and small about their growth aspirations and how marketing can help them achieve that growth.
What I have found, in short, is that most businesses want one of these three things:
- more quality leads
- more sales from those leads
- to retain customers for longer.
What surprises me is how few businesses actually have a marketing plan or a simple budget in place to achieve what they want to achieve.
Traditionally, to get a marketing budget, most businesses will set aside a percentage of their forecast turnover. This of course, can vary hugely depending on what sector you are in and the margin you want back etc. But it also depends on your business plan and the needs and objectives of the business.
Ultimately, marketing budgets need to be affordable to the business. In turn, forecasts and business plans need to be in line with the amount of money you set aside for marketing.
This is where I often see the disconnect.
If you don’t know how much it costs you to obtain an ideal customer, how can you set a marketing budget to get more in the future? How can you build a business plan that you can believe in?
Here are five questions you should ask yourself to build a business plan with a relevant marketing budget.
- How many leads do you generate in an average month?
- What percentage of your leads turn into real opportunities?
- What percentage of the opportunities turn into your ideal customer?
- What is your average sale value?
- What is your customer lifetime value?
Let’s have a quick look at those and turn them into an example.
Let’s say you generate 20 leads through your marketing a month from a £3,000 per month budget.
Of those, you turn 50% into real opportunities with a revenue figure attached.
You then turn 40% of your opportunities into an ideal customer and each sale is worth £2,000.
With your current sales and marketing efforts you’ve generated four customers, generating £8,000 worth of new business sales per month.
From your marketing budget of £3,000 per month, those four customers have cost you £750 each to get.
However, if their lifetime value is £6,000 then your return on investment obviously is greatly higher.
Once you have these figures you can see that it becomes much easier to forecast and build a business plan around them that is accurate and achievable. More importantly, this will provide scalability and the ability to plan resource and staffing more accurately in your plan.
Of course, once we have these metrics we can start to improve on them. Our job is to drive the cost of customer acquisition down and the lifetime value up. So, it is also important to be constantly challenging these metrics. For example, ask yourself:
- How can we improve the quantity and the quality of the leads so that we generate more opportunities?
- How can we improve our sales messaging and personas to make sure we only get the right leads?
- How can we provide the sales team with the tools and case studies that will improve the opportunity to close ratio so we can bring down the cost per acquisition?
- What can we do to market to our existing clients to make sure we retain them for longer to drive up our lifetime value?
So often the marketing budget line in the business plan is added in isolation of the needs of the business.
More often than not, it is considered a cost or an overhead that can be reduced at the first sign of stormy weather as it dramatically affects the bottom line right now.
But, at what cost for the future of your business? What happens to your business plan if you stop generating leads?
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Watch the video here