Are You Flying Blind Without a Marketing Budget?

What is your marketing budget? Getting this answer out of people today is tough. You might have better luck asking them about their voting history.

Half the people I ask this question act like it's a big secret. The other half honestly don't know because they don't have a marketing budget. They spend at the discretion of the CEO or sales and marketing leaders.

Maybe they need to redesign their website. Maybe it's a tradeshow they want to go to. Money is spent ad hoc, and at the end of the day the company really doesn’t know what marketing dollars were spent. And worse—they don't even know their marketing ROI because of all of the one-off projects they initiated in lieu of implementing a well thought out marketing strategy.

Knowing your goals to avoid snap decisions

One of the common questions I hear is “What should we spend on our marketing budget?” This can be a tough question to answer without knowing your business goals. But once you know what you are trying to achieve, you can be more strategic when selecting marketing tactics. There is no shortage of tactics to choose from, and knowing what tactic will help you reach your goals can help you narrow down the list.

Imagine you go to a grocery store without a grocery list or spending limit. You’ll end up buying anything that looks good on the shelf. And then you get home to find you don't have all the ingredients you needed for dinner, so you find yourself going back to the grocery store because all I have to eat for dinner is Oreos and Doritos.  

In the marketing world, instead of coming home with junk food you wind up making questionable ad buys from persuasive ad reps, a closet full of giveaways no one wants, wasted trade show attendance, and a bunch of sales collateral the salesforce couldn’t live without but never uses, and no way of knowing how to measure your ROI.

Planning according to your budget

Suppose you want to plan a trip for you and your significant other. You’ve got a big anniversary coming up and want to do something really special. Well, if I say to you, "You should go and spend the weekend in Paris. I know this great hotel for about $1,000 a night. And there's a great restaurant nearby where you can have the best foie gras you’ve ever had, and their champagne list is amazing. But you interrupt me and say, "Richard, that sounds really nice, but I was thinking San Antonio for the weekend and staying at the Riverwalk.” Well, this changes my recommendations significantly, right? I should have asked for your budget right away. Marketing is no different—know what you want to achieve, what you want to pay, and stick to your plan.

Calculating the ideal marketing budget

You’re probably reading this now and saying, “Okay, smart guy. What’s a good marketing budget?" Some marketers determine budget based on revenue size, or they'll base it on last year’s spend. But I recommend taking a fresh look at your budget and then creating one that will help you reach your business goals for the year. Inevitably, adding new customers is a goal many of my clients have each year. In that case, a useful number to understand is the lifetime value of your customer.

If you know the lifetime value of your customer is $250,000 because they signed a contract for your software service for $25,000 a year, and on average customers subscribe for 10 years, you know how much that customer is worth to you. Now you can really calculate how much you want to spend to acquire a $250,000 customer. Are you willing to spend a thousand dollars to get that customer? I would make that trade any day.

Once you understand cost of goods sold, how much it costs to maintain existing clients, and how much it costs to capture new prospects, you’ll have a good idea of what to spend if you need to acquire 20 new million-dollar customers next year.

Focusing your dollars for maximum returns

Sticking to a solid budget means spending less money and aiming for the most effective marketing tactics. For instance, I had a client the other day who asked me a simple question, "Should we go to this tradeshow?” Knowing his goals are to increase his company’s brand awareness, double his revenue, and expand outside of Texas, the tradeshow could potentially be a useful tactic.

I said, "It's very hard to tell you without knowing what your marketing budget is. It's going to cost $8,000 to go to this tradeshow all-in. And if you tell me that your marketing budget for the entire year is $10,000, you don't want to spend 80% of the budget going to one trade show. But if you tell me your marketing budget is $200,000, I'd say yes. That could be a good place to go to meet prospects and raise brand awareness with the right audience. The show will attract attendees outside Texas, and there will be lots prospects there, so yeah, let's do it."

Once you understand what your marketing budget is, you can make very, very good and clear decisions about what you want to do, and not wind up back at home eating Ramen noodles and Oreos.