marketing budget as a percentage of revenue

 

World class firms perform marketing budget planning from two dimensions:

 

  1. Top-down – The business allocates a % of total revenue to marketing based on past history and known thresholds in the industry for marketing spend.
  2. Bottoms-up – The marketing team performs activity-level planning.  This data rich effort reverse engineers the impact desired by using historic data.

     

Do you have enough budget? Download the B2B Marketing Budget Sizing Calculator.

 

B2B Marketing Budget Sizing Calculator

Why % of Total Revenue Isn’t Enough

Most companies benchmark their marketing budget as a percentage of total revenue.  This is a good barometer to gauge degree of magnitude.  However, it is about as sufficient as a doctor who takes a patient’s temperature.  It gives you insights, but comes nowhere close to answering the root cause.

 

Below is an example of a simple benchmark of marketing budget as a percentage of revenue.

 

While the % spend is useful, it requires a deeper analysis of spend.  The mix of Program vs. Staff costs must be examined.  An effective marketing team must have a good blend of program dollars in relation to their staff costs.  A great staff without dollars to run programs is not optimized.

 

The total budget also does not point to how the dollars are used.  The types of activities vary significantly within marketing teams.  A heavy reliance on branding and tradeshow activities may have the right spend, but the wrong mix.  An agile marketing team with a shoestring budget can drive quality leads.

 

What’s most important before determining the amount of budget is validating the right activities.  Do the activities drive the desired result?  Or are they just check boxes for marketing managers to complete?   The Marketing Budget Sizing Calculator takes a data-intense approach to building a budget.

 

Stop guessing and start using a model that the CEO and CFO will embrace.  This is the key to unlocking additional dollars as well.

 

CMO’s Aim for 25% Contribution to Pipeline and Revenue

Marketing and Sales have seen radical shifts over the past twenty years in expectations.  This has left C-Level executives without certainty of what to expect from marketing.

 

As the diagram shows below, in the past 100% of leads came from sales.  As the marketing discipline began to develop then marketing became more involved.  However we over-rotated.  Companies began to think 100% of leads could come from marketing.  This can happen, but is rare in B2B except in unique transaction types and service models.

 

Balance is the key ingredient to success for both Sales and Marketing.  The ideal mix if a strong emphasis on the Sales team responsible for generating leads.  To support Sales, the Marketing team must support the lead generation efforts.

 

sales marketing lead contribution

World Class B2B marketing teams contribute 25%+ to the total pipeline and revenue.  That means that a quarter of every dollar of revenue originated as a marketing lead.  But you don’t get there overnight.  Companies that are able to reach this threshold are marketing teams with mature capabilities.  They fine-tune the capability over time with incremental improvements.

 

The percentage of pipeline and revenue is in context to sales performance.  The 25% average among world class firms is a threshold that can be surpassed.  It’s also a threshold that most companies need to aspire to hit over 1-3 years.

 

Success in the area of % contribution is being able to baseline and track improvement.  Each year the improvement increases as the team gets stronger.

 

Start with the desired impact when determining the ideal marketing spend. 

 

“In God we Trust.  All Others, Bring Data”

 

Alex Andrianopoulos, VP of Marketing from Guidance Software

 

This is one of my favorite quotes pointing to the importance of data-driven decision making.  Don’t guess anymore based on a top-down budget allocation.  Leverage the tool to give you the framework to arrive at the ideal marketing budget number.

 

Begin to create scenarios for what it will take.  Take advantage of the Excel file to customize the fields and formulas to your unique business needs.

 

Do You have enough budget? Download the B2B Marketing Budget Sizing Calculator.

 

ABOUT THE AUTHOR

Vince Koehler

Brings deep marketing expertise to help clients make brands successful and drive strong marketing return on investment.
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Prior to SBI, Vince served as the VP of Marketing for Integer and led e-commerce Agency of Record account teams at VML, a full service digital marketing agency. During his tenure, VML became a market leader, growing from 72 to more than 700 employees. Prior to VML, Vince was the President of Propeller Interactive, a digital marketing agency with clients such as Koch & Sprint.

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