By: Stacy Whisel
There is no magic formula for creating a marketing budget, especially for B2B companies.
There is no magic formula for creating a marketing budget. This is especially true for B2B companies. Marketing teams tasked with designing an annual marketing budget have many factors to consider, including a current key priority for B2B marketers — proving ROI. This is an increasingly important factor in how budgets are created, with marketing teams being asked to better justify their spending and demonstrate improved performance and results.
In our 30 plus years of working with B2B marketers in annual marketing budgeting, we have seen many approaches which range from the simple to the complex. Here are five common methods for creating a marketing budget with the pros and cons for each.
1. Use recent history.
This is one of the simpler approaches. Take the previous year, or a recent campaign budget, and use that as the baseline for developing a new budget.
Pro: You know what was spent last year, and you can modify your upcoming budget based on the tactics that worked well. You can also drop things that were less successful.
Con: This method is backward looking and may not represent the current business conditions or marketing priorities. Additional calculations may be needed to plan for new year nuances (new product launches, trade shows, etc.).
2. Base budget on a percentage of sales (historical or forecasted).
There is plenty of research that tracks how different types of businesses allocate the marketing budget by using a formula that is simply a percent of company sales. One resource that tracks and publishes this information is the CMO Survey. Published twice a year since 2009, this survey provides benchmarks for marketing spending and actions within and across various industries. The data from their August survey found that marketing budgets for B2B product companies comprise 8% of the total company budget. This is down from 11% in August 2016.
Pro: This method is a straight-forward, numerical formula that can be applied to the previous years’ sales or a forecasted number.
Con: This approach fails to account for economic factors, industry cycles or the specific goals of your organization.
3. Align the spending of your competitors
Similar to the percentage of sales methodology, by analyzing how much your competitors are spending, you can use the data to inform a budget to match or do better.
Pro: Setting a budget based on your competition helps provide a more even playing field in the quest to capture customer attention.
Con: There are tools that track advertising spend, but they are not all-encompassing of every marketing effort. And spending more dollars does not always equal increased market share.
4. Allocate based on annual initiatives.
This is the approach where you start from scratch and build a marketing budget based on current business and/or marketing goals. A percentage for each main initiative or channel is carved out. For example, if a big product launch is part of the company’s focus, then you might assign 50% of your budget to support it. Or if you are shifting to a thought leadership approach, allocating 30% of the budget towards content creation might be warranted.
Pro: Allows for a customized and thoughtful way to line-item budgets.
Con: Takes a lot of pre-planning and may not allow for agile pivots if business goals are not yet solidified or are expected to change throughout the course of the year.
5.Use a KPI formula.
This is an approach that will probably be most appreciated by a CFO. You begin by determining what a certain level of investment can achieve. For example, by spending 10% more in marketing, we would increase leads by 25%.
Pro: This is an ROI approach that can be measured.
Con: It can be tough to get realistic numbers unless you have already seen strong performance with some marketing tactics. Long sales cycles in many B2B industries usually do not have easy end-to-end tracking.
All of these approaches for budgeting can work for a B2B organization, but, in most cases, utilizing a combination of each will result in a justified and reasonable number.
Getting to an annual number is just the beginning. Another dynamic that makes budgeting a challenge is trying to reconcile the annual budget model with the need to incorporate more agile and campaign-based marketing efforts. Today’s marketers need to be able to adjust quickly when results and metrics indicate a strategy or tactic isn’t performing as expected. Allocating marketing plan budgets on an annual basis may not leave much room for flexibility, but there are strategies you can put in place to ensure the ability to shift direction mid-year if needed.
B2B marketers are tasked with being the brand guardian, acquiring and retaining customers, improving the customer experience and leading digital transformations. Taking a strategic approach to budgeting will go a long way in making the case for the necessary resources for taking on each of those priorities