Rachel Carpenter is marketing strategist at RedRover Sales & Marketing Strategy
It is that time of year. No, not the start of football season – the start of budgeting season. If you’ve had a great year and your 2017 marketing efforts are producing a strong, measurable ROI, then setting your 2018 marketing budget may not be too difficult. But if this year’s plans just haven’t generated results for your organization, you may be left wondering what to budget for 2018.
There’s certainly more than one effective method of determining next year’s marketing budget. But let’s explore two – goal based and revenue based.
Goal-based budgeting is like working backwards. First, you identify the goal the organization would like to achieve in 2018. Let’s say you want to generate 100 new customers, and you typically convert one new customer for every 10 prospects. So to win 100 new customers, you’ve got to generate 1,000 prospects. Next, look at historical data to identify what tactics and spend are required to yield 1,000 prospects. Now you have a basis for identifying the budget you need to achieve your goals in 2018.
What if previous efforts haven’t generated results, or you don’t have sufficient data to use goal-based budgeting? Your best option may be revenue-based budgeting. This method involves using a percentage of projected revenue to set the marketing budget. For example, if you generated $10M in revenue in 2017 with a $500K marketing budget and intend to increase revenue by 10 percent in 2018, your marketing budget should increase to $550K accordingly.
Generally speaking, though it certainly varies by industry, companies with at least six-figures in revenue that are looking to maintain their current standing should spend about five percent of total revenue on marketing efforts. Those looking to grow or gain market share should spend closer to 10 percent. (Source: frog-dog.com)
Now, there are several additional aspects to consider with the revenue-based method to better fine-tune your marketing budget – your industry, what you’re selling, who you are selling to, and years in business. The Fuqua School of Business at Duke University sponsored the CMO Survey, which shows B2C companies spend more than B2B companies at nine percent versus seven to eight percent. Additionally, those selling services spend more than those selling products. (Source: Web Strategies) And the newer your company, the more you’ll have to spend to create brand awareness and convert customers.
As with all marketing efforts, there isn’t a magical one-size-fits-all approach to setting a marketing budget. Do your homework and evaluate past efforts with a critical eye. Don’t be afraid to revisit previous efforts that delivered, just for the sake of innovation. And conversely, don’t continue with poor-performing tactics simply because they are known and familiar.