There are many ways to set sales and/or marketing budgets.
- Arbitrary – Based on a number out of thin air
- Historical – Based on what was spent in the past
- Cash Flow – Budget based on how much money we have right now
- Data – Based on a deliberate process using Cost of Customer Acquisition and real world estimates.
In this episode, I’ll show you the tool my firm uses to figure out a marketing budget that not too high and not too low.
Unless you are doing the math, you are essentially guessing.
Why is this important? You can spend too little for years and never see a Return on Investment because you don’t build up enough momentum in the market. Year after year of modest spending that produces no measurable impact is a very expensive mistake.
Think of sales and marketing as a huge flywheel.
It takes more energy to start the flywheel and much less energy the more it spins. You don’t want to overspend either – it’s crucial to find the right balance. The budget amount is based on very unique circumstances with your company and market.
Using Cost of Customer Acquisition (CAC) to set a rough marketing budget is a better way than making educated guesses. Of course, there is more to it.
Once you’ve set the rough budget – work backwards by getting pricing on the major initiatives and adjust according to what things actually cost. Your rough budget may change or your strategy may change – but that’s OK.
This exercise can be run once a quarter to track performance and adjust to market conditions. Remember – nothing in marketing should be set in stone. A good strategy is flexible and adapts to rapidly changing markets.
All of Clarity Marketing Support’s MASTER MARKETING offerings include running scenarios and determining the current CAC, average transaction, Customer Lifetime Value (LTV) to dial in a budget that is a perfect fit for your organization at this stage of its growth.