A big question that will always come up when B2B marketers are formulating a marketing plan is, “How much should I be spending on marketing?” Marketers will consider carefully how much to spend and how to allocate the budget.
The budget topic is growing more heated as the new marketing strategies occur and continue to evolve.
There are a lot of existing approaches that have been applied to help marketers and managers determine how much to spend. Now, let’s go through a list of some of those budgeting strategies.
By Percentage of Sales
This could be the most popular and simplest approach. Using this method, marketers just spend on their marketing activities by a predetermined percentage of their gross sales. Percentages are usually constant among different categories, but this tends to work better in more stable categories.
Unit of Sales
Some B2B companies estimate a general marketing spending based on their experience of what it takes to sell an actual unit. They will assign a specific amount of fund for each unit to be sold, so as to make a close estimate of how much they should spend for a sales target. For example, if past experience tells that it takes $1 of marketing expenditures to sell one toy, and a toy manufacturer wants to move 10,000 units, $10,000 or so should be budgeted.
Profit Based Method
This approach is based on expected gain from a new customer and the cost to acquire that customer. Software as a service companies tend to use this method. For instance, when they estimate that a potential customer will spend $100 per month on an average contract lifetime of say, three years, they know that the customer will bring about $3,600 for the term of the contract. From that $3,600, they estimate the total profit and how much they’re willing to invest in obtaining the customer. Then a final budget will depend on how many customers they want to get.
Marketing Goals Method
This may serve as the most effective but least often used method as it ties the planned marketing directly to the achievement of a specific business goal. Once a particular business goal is set (e.g. “to recruit at least one thousand new paid members within one month”), the marketing is then estimated to determine the cost. In fact, financial condition should also be considered if the set objective is impractical.
Competitive Parity Method
This budgeting method is based on what a brand’s or firm’s competitors are estimated to be spending. If a business knows how much its competitors are spending on marketing, it can use that as a benchmark and spend more or less to stay competitive. This approach, however, presents a problem that competitors often have different marketing objectives and strategies, and keeping eyes only on the amount spent on marketing can be delusory.
Put Lead Generation Goals First
Whatever B2B marketers base their budgeting on, the most important thing to remember is what the marketing needs to achieve more than anything else: lead generation.
JumoreGlobal found that almost all B2B marketing priorities are related to leads, such as lead generation, lead nurturing, lead qualification and scoring, as well as converting leads into customers.
Therefore, the most useful and feasible way to develop a meaningful marketing budget is to tie B2B marketing activities directly to lead generation for ultimate revenue goals.
With this idea in mind, not only can you start to establish your marketing budget, but marketing and sales can also be better aligned.