A Better Way to Set Your Marketing Budget
The best way to develop a marketing budget is to treat that budget as if it’s an investment — something that delivers an expected, quantified return over time. In order to build a strong business case around this concept, a marketer must understand the dynamics of their funnel. Take a deep dive into how new potential customers enter in the top of the funnel, how much you need to invest to find those prospects and help them move through the revenue cycle …
With this model in place, marketers can run scenarios that show how the budget translates into more leads, opportunities, and wins down the funnel. (They can also quantify the impact budget cuts will have.) At most companies, any significant investment must be supported by a business case that shows it will deliver a “hurdle rate”, or minimum rate of return. If you can make that case, the CFO generally approves it. Of course, some types of activities — demand generation comes to mind — are easier to tie to ROI than others, such as brand-building or PR. But no matter what the activity, make “worst case”, “expected case”, and “best case” assumptions to show the range of possible outcomes.
Sales Renewal’s insight:
No one would argue that it takes money to make money. Yet when it comes to marketing it’s very challenging to view it as an investment too, and not just an expense.
The author does a nice job explaining some of the ways to do a marketing investment analysis, and even makes a plea to treat marketing just like other business investments, even capital spending (are you listening FASB?)
We ourselves have tried to contribute to this change in mindset, for example, we’ve presented real-life data that shows the more you invest in marketing, the more your leads increase and costs per sale or lead decrease to larger growth (here).
We even offer a quick, low-cost service, a Marketing Investment Analysis, that will help you figure out what a rationale marketing investment in your business should be.
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