January 8, 2018, posted by Tony Quin
How Much to Budget for Prospect Acquisition
The Brand Advertising and Brand Activation you need to find prospects in the first place costs money and include many potential channels and choices. But before you can start to decide what to spend, where, you need to know how big your budget is. Your marketing plan process should have identified your marketing goals and the tactics that were most likely to accomplish them. As part of that process, you should also have estimated the associated costs and projected performance of those tactics to prioritize them. This now becomes the basis for your campaign budgeting.
If you haven’t gone through this process before, then the idea is to quantify your goals for the year or the period you’re looking at and determine how much you can spend to achieve them. If your goal is to increase sales by 20%, you need to understand what the marginal value of those sales are and how much can be invested to get them, to deliver the required ROI. This calculation may also be influenced by other considerations, such as increasing your share of market, or investing in the long-term value of an acquired customer. Either way, this will give you an amount of money to invest to achieve your goal. Within the highly measurable world that marketing has become today, this sets up your activities to be like any other business investment; expected to deliver a specified and measurable return-on-investment.
Another way to approach budgeting is to start with the end in mind. Decide how many sales you want to make and work backward through the funnel to determine how many prospects have to go in the top, and what you can afford to pay to get them. To do this successfully your assumptions about conversion rates at each stage of the funnel have to be valid, conservative and based on evidence. You also have to factor in that since your Paid advertising will be working with other Owned and Earned tactics, the budget will also have to provide for their costs.
According to a CMO survey, B2C companies with revenues over $25mm spend around 9% of revenues on marketing, while B2B companies spend around 8%. This not only covers advertising spend but staffing, CRM, content costs, etc. Interestingly if you study the fastest growing midsize and large companies, many spend much more than this. In 2014, for example, Salesforce spent 53% of its total revenue, Linkedin 35%, Microsoft 18% and even Tempur & Sealy, the bedding company, spent 21%! Those are very big numbers, but it’s fair to note that these companies also routinely produce outsized year-on-year growth.
Of course, there are no hard and fast rules. But typically, companies that invest heavily in marketing do better than those that don’t, everything else being even. That’s why some of the world’s most valuable companies are the best marketers: a look at the Forbes top 20 most valuable brands is a who’s who of brilliant marketers, featuring Coca-Cola, Apple, Disney, Toyota, MacDonald’s, Nike, Mercedes and Samsung among others. That said, it’s understandable that business leaders, especially in smaller companies, are hesitant when they leave the comparative comfort of their own business’ and venture into the less predictable world of marketing. Unfortunately, however, the time has passed when companies of almost any size, can avoid this discomfort and bypass marketing. The expectations of the digitally savvy consumer, combined with a highly competitive environment, mean that being good at marketing is now essential for success and even survival.
This is probably the closest your marketing will come to old-school advertising. It is also the most expensive stage in the consumer journey because Paid Media will be more prevalent than later. That’s why good budgeting to accomplish your goals is essential.