A lot of small business owners ask this question and the answer is not always satisfying to them, because it really depends on a number of factors which we will discuss in this article.
But before we do, it might make sense to understand the importance of creating a marketing budget in the first place.
Why is it important to create a B2B marketing budget?
B2B marketing budgets are important because they allow businesses to strategically allocate their resources. The more you know about your budget, the better you can plan for success.
A good B2B marketing budget starts with understanding your company’s needs and goals. The first step is defining your KPIs (key performance indicators) so that you can measure success. A marketing plan and budget will help you to define ‘what success would look like’. This is an important step for a business owner and/or management team.
Will the future success of your business be based on acquiring larger customers than you have today? Or would it be based on more clients that look like your current customers? OR would your future success depend upon opening a new niche or geographic market? The ‘vision’ of what that future success looks like is critical to building marketing strategies to help you get there.
As the old saying goes, “If you don’t know where you are going, how will you know when you have arrived?”
It’s important to create a marketing budget because it helps you stay focused on the right things and it will help you reach your business goals by creating an actionable roadmap for your company.
Some KEY factors you should consider when creating your B2B marketing budget?
Once you have the ‘vision’ in place, you need to quantify how you are going to get there. While building your B2B marketing budget, you will need to consider some of the following factors.
Key factors that should be considered when creating a B2B marketing budget include:
- Your company’s revenue, profitability, and scalability
- The size of your current customer base and their ‘persona(s)’
- The type of products or services offered by your company
- The Lifetime Value (LTV) of your customer
- The competitive landscape of your current market (or growth market)
Cash Flow is Important, but Not Everything
Without a doubt, the first thing that you need to know is how much money your business has to spend on marketing.
This will be influenced by factors such as your current and projected revenue and profitability. You can not spend money that you do not have. But, at the same time, you must realize that marketing is not a ‘cost’, it is an important investment in future revenue.
This means that you need to know how much revenue you will receive for your marketing efforts. The market landscape needs to be considered in your B2B marketing budget to determine how ‘deep the well’ is with future business potential.
Your Client’s Lifetime Value (LTV)
A critical factor that is often overlooked is a proper evaluation of your customer’s ‘lifetime value’. Unless you are selling a one-time need widget, many B2B companies are selling ongoing services and/or products that have some defined replacement timeframe, or some ‘upsell’ opportunities. Because this is generally the case, many customer acquisitions should be viewed with that total ‘lifetime value’.
As an example, you sell a SaaS solution that has a monthly fee of $10,000. Historically, your customers use this solution for an average of 22 months. The next potential customer is not a $10,000 customer, they are in fact a $220,000 customer!
Additionally, you may find that your typical new customer leads to 1 new referral on average, which adds more potential customers.
So, in this scenario, you are not investing in marketing to win a new $10,000 customer… you are investing in marketing to win a new $220,000+ customer! These are two very different ‘returns on investment’ (ROI) and warrant different investment strategies… and budgets. If you were to allocate a percentage of future revenue to acquire it, the investment dollars would be substantially different!
Your Client’s ‘Persona’
Even if you are planning to market to your existing customer population, it is important to clearly identify their ‘persona’. A lot has been written about a ‘buyer persona’ and the ‘buying journey’, so we will not go into too much detail here… but these customer behaviors need to be clearly understood (and not assumed based on past experience.)
If you are planning to market to a new niche or geographic area, the value of an up-to-date review of your buyer behavior is critical.
From this review, you can determine what kind of marketing tactics will work for reaching and engaging them. You will also determine what types of media and channels are most effective for reaching out to your potential customers. Some questions that you will cover, include:
- Is a big investment in a digital marketing strategy appropriate?
- How valuable would an email marketing strategy be for this type of client?
- What social media channels are appropriate for this audience?
- How much of the sales process will be conducted offline versus online?
Another aspect of a ‘buyer journey’ for your B2B marketing budget is the timing of your buyer’s typical purchase. Are they normally buying before or after a fiscal year or calendar year? Do the seasons or some other calendar factor play a part? Both of these timing factors could be true for a business such as a commercial landscaper or construction contractor.
Your Marketing Budget: Not Too Much, and Not Too Little
Like Goldilocks, there is a marketing budget that is just right for your business. It will probably not match another business out there for amount and tactics. But, it is the right one for yours.
And, this is not meant to be an exhaustive list of marketing budget elements for you to consider. That kind of list and templates for marketing plans can be found across the internet. But, we believe that these factors are some of the most important for any marketing budget so that it gets the right message to the right people, at the right place, and at the right time.
For smaller B2B businesses, it is important to allocate your marketing budget judicially… but also effectively. What often happens is that these businesses under-appreciate the LTV of their future customers and don’t allocate the budget to truly win them. Then, when they don’t see the results from their marketing activity that they had hoped for, they retract and take the wrong lesson from the experience — that marketing doesn’t work.
The truth is – B2B marketing is very effective when planned and budgeted properly. If you would like to explore a different approach to building your marketing budget, Contact Us.
For B2C business owners and managers – Not to say that these points can’t apply to a B2C business, but the benefit is much stronger for B2B. For some B2C marketing strategies, you might enjoy this article about improving your Local Search Visibility.