When meeting with clients that want to set out to start paid marketing as well as in quarterly or yearly reviews, we regularly get the question “What is a good marketing budget?” As condensed as this question is, the natural answer is always “It depends.”
In order to not leave you at this relatively unsatisfying point, we can specify a bit more, why it depends. Ideally you come up with a rough outline to some of the following questions:
How much can we (or do we want to) spend for acquiring a lead / customer?
This question might be relatively simple but answering it is most often harder than you think, as it entails follow-up questions that definitely require some thorough consideration: is the company on an expansion path and willing to pay more than what would be profitable? How much profit do you actually make from a customer, which might be easier to answer in an ecommerce store than for a B2B company or subscription service?
Let’s put it into practice: For B2C eCommerce, think about if you regularly have to re-acquire users or if an initial acquisition might bring in more revenue by the user returning organically. For a B2B company a back-of-the-napkin calculation along your lead funnel can help determine what you might want to pay for a lead: per 100 leads, we get into calls with 20 leads and 2 of those subscribed for a 1000 Euro avg contract value. In this example you make 2000 Euro per 100 leads or 20 Euro per lead which gives you an orientation about what you can pay for a lead. (You can of course also look into increasing conversion rates in the sales funnel which helps raise the available spend per lead).
What do you want to achieve with paid leads?
Well, obviously more leads. But do you have a quarterly goal where you want to close the gap between what organic channels deliver and the goal with paid leads? Have you aligned the capacity of lead acquisition with what the sales team or your webshop fulfillment can handle? It would be a shame (and a waste of money) to buy leads that you cannot handle in your process having paid for them without the potential to remonetise them, maybe even putting them off by long contact cycles or delayed deliveries.
How much budget is possible?
When there is an agreed budget, you might already have your answer but it can be more tricky than that. Given that the conversion of a lead to a sale or purchase is profitable, is the budget maybe not a fixed budget but can be raised on demand? Which processes do you need to follow to get more budget and if they are lengthy maybe you want to ask for “some more” earlier on so that a successful campaign is not halted by a budget process. Also keep in mind that in some business models the reamortization time for a lead might be months and if you grow “too fast” this might not catch up and refinance the spend you have earlier on. A good view on your data along your value chain with a business intelligence and data visualization setup can go a long way towards answering this question and more.
There are more aspects to the overall budget question but we hope these initial guidelines provide some food for thought when it comes to answering the “What is a good marketing budget?” for your company. In order to get some numbers on the table as well, we provide you with this simplified calculator for you to play around with parameters and get an idea of what to expect from marketing. If you need input on what to do with your budget and where to spend it, feel free to reach out here or on one of our social media presences. We are happy to help with your digital marketing topics.