Marketing Budget Calculator: How much should it really be?

3 October 2013
Comments: 2
Category: Marketing, Tools
3 October 2013, Comments: 2

When I was running marketing in Europe, I wished there had been a ‘Marketing Budget Calculator’ that I could use that was based in real logic. Instead, as is so typical in many organisations, finance issued a budget that was based on nothing more than a very modest revision of what was allocated the year before. If last year’s allocation had been fantastic, that wouldn’t have been such a problem. But budgets were so far under what they should have been each year, so finance’s approach piled more misery on us than we’d faced previously.┬áSales, of course, had bigger targets. They were expecting us to contribute much more.

I would go through the motions of building a detailed budget, based on the reality of how much things cost, and the returns we had seen in the past. I would put in for a number that was significantly more than I had had in previous years. Finance would say no. Sales would demand that we contributed towards more of their new business pipeline target than was even possible with a budget twice the size.

This may be a scenario faced by many of you. The problem was, while I had data about what realistic budget allocations should be, I didn’t have a way of showing it in an easy to digest way.

I have now spent some time building a calculator, in which you can plug your revenue for the previous year, target revenue for the next year, and it will calculate your growth. Based on a load of complicated formulas, it will then show you what percentage of revenue should be spent on marketing. It further breaks this down to show budget based on programs and personnel. The data model behind the tool differentiates between companies of different sizes – $0-100M, $100-500M, and $500M-$1B. The variables will change depending on which group your company falls into.

The calculator will also show you how much of the incremental revenue should be contributed by marketing (vs sales). It is fair to say that not all companies’ marketing functions are as well developed (or not) as each other, so you can also choose whether you would rate your function as poor, average, or high performing. Be honest here. If your company’s marketing team is small, and you haven’t yet got your act together on many aspects, you should probably pick ‘poor’. If on the other hand, you have a well organised marketing calendar or great content marketing, integrated into social media, and other channels, with full marketing automation, you should choose ‘high’. Anywhere in between and you are ‘average’.

The calculator has used data from a number of different sources, including research carried out by Sirius Decisions.

What this calculator can do for you is help you understand, and articulate easily what the budget should be (based on research and evidence) to achieve the goals being requested. It will also make sure you are not forced to commit to marketing pipeline contribution which is simply impossible to meet. Lastly, it will enable you to have a conversation with both of these factors represented together. If the budget you are given is lower than it need to be, then the amount you can contribute to the pipeline will also need to be lower, and vice versa.

Have a play with the calculator and see whether it is useful for you. I’d love to hear back from you with any comment or stories.

Input data into the green cells, and the rest will calculate automatically for you.

 

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Ralph Varcoe

Managing Director at Accelerate Performance
If you want a creative, energetic person, who thinks like a customer, and knows what it means to be a marketer and sales person, then I'm the guy to help you drive marketing and sales to be the best they can be.

2 responses on “Marketing Budget Calculator: How much should it really be?

  1. VC says:

    This is really interesting and I daresay, a huge step in a much-needed and obviously the right direction. I am intrigued at the application of the 3.5% template for calculating the marketing budget… also the algorithm to calculate ROI… how do we arrive at this standard and does this stay consistent irrespective of industry and offering and buying processes and sales cycles?

    Will love to understand this more… and hats off to you for going where pretentious marketing angels fear to tread. This is where the rubber comes off and the true marketeers are ready to get held to account, if you know what I mean.

    Warmest

    VC

    • Ralph Varcoe says:

      Hey VC – thanks for the comment and question.
      The percentages and other data are taken from research that Sirius Decisions had undertaken over a few years. Broadly the model works for B2B, outside the software market. It should provide a guide to marketers to be able to have the robust conversation with management and sales about what the art of the possible is.

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