Sales and Marketing Budget Benchmarks & Best Practices
One of our subscribers recently asked: "We just went through our planning and budgeting process and my management team slashed my budget in half. I need to justify and fight for more money. Any guidance on how to best do that?"
It's a question we get fairly often--particulary in a tough economy. On the other side of the coin, we also get asked by CEOs just as often: "We need to tighten expenses and sales and marketing is the logical place to find waste. But I don't want to cut off our nose to spite our face. How can I make sure we're getting a strong return on investment with the sales and marketing dollars we do have?"
In both scenarios, our answer is the following three-prong Sales and Marketing Budget Analysis approach—based on industry benchmarks and best practices (includes recent sales and marketing benchmark data from our most recent Sales and Marketing Industry Study):
1. Industry Standards:
Utilize industry metrics to show where you stand in your sales and marketing costs as a percentage of revenue. Our recent survey of sales and marketing professionals and business leaders reported the following benchmarks:
MARKETING Budget (as percent of revenue):
% of Revenue |
% of Companies |
No Budget |
1.1% |
0-2% |
28.6% |
3-5% |
33% |
6-10% |
21.1% |
11-15% |
8.6% |
16-20% |
4.3% |
20+% |
3.2% |
SALES Budget (as percent of revenue):
% of Revenue |
% of Companies |
No Budget |
4% |
0-2% |
14.5% |
3-5% |
23.4% |
6-10% |
27.6% |
11-15% |
13.5% |
16-20% |
8.4% |
20+% |
8.5% |
2. Marketing Plan
ROI Projection: Show thorough a return on investment analysis of your marketing plans, based on industry standard response rates. The ROI formula you should use is the NUMBER OF IMPRESSIONS x EXPECTED RESPONSE RATE = LEADS GENERATED PER YEAR x LEAD-TO-PROPOSAL % = NUMBER OF PROPOSALS x CLOSE RATE = NUMBER OF CUSTOMERS x ANNUAL CUSTOMER VALUE = REVENUE - TOTAL MARKETING EXPENSE = ROI. You'll have to make some assumptions on some of your conversion ratios, but at least it's a stake in the ground. For more on calculating a marketing plan ROI: Calculating your Marketing Plan ROI!
3. Lifetime Value of a Customer:
Calculate the lifetime value of a customer and understand how that translates to acceptable "acquisition" costs (a "what you can afford" analysis). In marketing budgeting, what is often not asked is perhaps the most critical metric of all. How much can you afford to spend to acquire a new customer? The path to answering this question boils down to knowing your Lifetime Value of a Customer. The Lifetime Value (LTV) of a Customer is built from the following equation: LTV = (Frequency of Purchase) X (Duration of Loyalty) X (Gross Profit). For more on customer lifetime value: How much can you spend on Customer Acquisition?
Use these three methods to analyze your sales and marketing budget needs and the programs/models you've designed. Who knows, you may just find some flaws in your original plans you didn't know were there!
Download templates and tools (Marketing Budget Spreadsheet, Marketing Return On Investment Calculator, Customer Lifetime Value Tool, and more) to help you determine....are you spending too much, or not enough?
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The Sales and Marketing Toolkits BUNDLED contains:
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Over 60 sales and marketing templates (DOC, XLS, PPT, and PDFs)
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Loads of "how-to" articles and examples
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8 Training sessions (MP3 audio files) for your computer or iPod
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