There is no one-size-fits-all answer to how to determine marketing budget, as the amount of money you should spend on marketing will vary depending on a number of factors. There are some common strategies for marketing budget allocation, which include:
- Revenue-based – The marketing budget is a percentage of the organization’s expected revenue.
- Competition-based – The marketing budget is based on an estimation of how much competitors spend.
- Metrics-based – The marketing budget is calculated based on specific metrics, beginning with a revenue goal from marketing efforts, and factoring in lead acquisition costs, conversion rate, lead capacity, etc.
Different approaches may work best for different companies, but at Xponent21, we’re highly data-driven and we encourage a metrics-based marketing budget determination. To determine your marketing budget with this approach, you need to:
- Start by determining a revenue goal. How much revenue do you aim to generate from your marketing efforts?
- Determine the average revenue per customer. How much value does a typical customer generate?
- Calculate your cost per lead (CPL). CPL is the average amount of money you spend to get a single lead. This will vary depending on the types of marketing campaigns you plan to run.
- Calculate your conversion rate. This is the percentage of people who visit your website or contact you after seeing one of your ads who actually become customers.
- Finally, calculate how many leads you need to generate to meet your revenue goals.
For example, if you know you spend $300 to drive 100 leads to your site, 10 of them will convert to customers, and each customer will on average spend $200, your net revenue here is $2000 – $300, or $1700. If your total marketing revenue goal from this campaign is $170,0000 then you’ll need to allocate a marketing budget of $30,000 to meet the goal.
Is math not your strong suit? No worries! When you work with Xponent21, your account strategist will help you calculate your marketing budget based on your goals. If you’re planning to run a pay per click campaign, you can also check out this PPC budget calculator to get a rough estimate of the necessary budget.