Effective marketing is essential for success in the ever-evolving business landscape. However, with a well-structured plan backed by data, your marketing efforts might stay within their potential. Building your marketing budget by the numbers involves leveraging historical performance and clearly defined company goals to ensure optimal budget allocation. Let’s delve into the transformative power of this approach.
Understanding Budget Allocation
To kickstart this process, it’s vital to understand GANI’s recommended breakdown of your marketing budget. Regardless of your company’s size, a balanced allocation typically looks like this:
- People Resources (Internal & External): 40%-55% of budget
- Special Capital Projects (Website, Large Video Projects, etc.): 7%-15% of budget
- Marketing Expense (Tech Stack, Ads, Tradeshows, etc.): 30%-50% of budget
Validating Budget Size
We often talk to leaders who are having a hard time justifying or getting their budget approved. They know they need the dollars, but because some boards or CEOs see marketing not as an extension of sales but as a cost, the number they submit always gets cut. Here are two ways our Marketing Strategy validates the size of a marketing budget, each with its merits:
- Percentage of Company Revenue: While the simplest, it is a tried-and-true method, setting your marketing budget as a percentage of company revenue offers a balanced approach. It can ensure financial prudence and optimal resource allocation across the abovementioned allocation buckets. The recommended percentage ranges—4-6% for B2B and 8-12% for B2C—reflect the distinct needs of different business models and marketing’s ability to create revenue without the need for sales team intervention.
Moreover, tying marketing expenses to revenue encourages a long-term perspective, driving investments and contributing to sustained growth and brand building. This strategic approach fosters innovation and continuous improvement in marketing practices. Additionally, it provides a clear guideline for budget allocation, enhancing financial planning and resource management. Ultimately, by aligning marketing budgets to the same revenue growth plans, businesses can maximize the impact of their marketing activities and pave the way for sustainable growth.
- Lead Generation Targets: Look, we would be lying if we didn’t say this method, is our favorite. It does require a little more information and time compared to the percentage of company revenue. However, it is the most effective way to measure and prove ROI for all marketing spend. And when you can prove your ROI, getting the budget you want/need becomes so much easier when it is founded in data and not desires.
This method thoroughly examines historical performance metrics such as lead conversion rates, average deal size, and the composition of the sales pipeline. By leveraging this historical data, sales and marketing teams can ensure they are aligned on areas of accountability for leads, pipelines, and even closed revenue. This creates more of a team feel between the two departments vs. what can typically happen, we will just leave it at that 😊. By working backward from the top revenue objective, organizations can calculate the number of sales, opportunities, and leads needed to meet their goals. This systematic approach ensures that marketing budgets are aligned with overarching revenue targets and business objectives.
The lead generation targets method offers a nuanced understanding of future ROI potential. By dissecting the various components of the sales process, businesses can identify areas for improvement and optimization. For instance, analyzing lead conversion rates may reveal opportunities to refine lead nurturing strategies and, therefore, how the marketing budget should be spent in a year. Similarly, understanding the average deal size can help the team better allocate lead-scoring points to industries or products that result in a higher ASP, making the targets easier to hit during the year.
Furthermore, this method allows companies to have very clear KPIs for sales and marketing as it starts a new year, creating clear expectations and simplifying decision-making. If your Marketing leader knows they must create 25% of the pipeline and after Q1 they are at 35%, they know they might be able to reallocate some budget to brand activities instead of lead generation to ensure the market clearly knows who your company is and the value of your product. Ultimately, the lead generation targets method empowers companies to make data-driven decisions that optimize their marketing ROI and drive sustainable growth.
Maximizing ROI for Growth
Ideally, combining both methods provides a comprehensive view of your marketing budget’s effectiveness. It can also help CEOs and the Board know if their expectations are appropriate for the upcoming year. Growth is always the goal, but when you combine these methods, you can really see if the desired revenue number is achievable with the desired spend on team, tools, and activities. And honestly, it can eliminate the budget game, of asking for 20% more than you want to ensure you get what you need. We all know it happens; maybe it is time to just use the data we have to build the budget instead of spending weeks negotiating to a number we know we would have taken from the start.
We do understand that navigating the intricacies of data-driven budgeting can be daunting, and if you haven’t done it before it can feel impossible to know where to start. If you are in that place or just want to get a second opinion as you work out your 3+9 budget, our Marketing and Revenue Ops teams are here to help you perform a budget audit and optimize your strategy for maximum impact. With the 2025 budget season less than 150 days away, yup, it is already around the corner. Now is the perfect time to ensure your marketing plan is primed for success.