016. How to Justify Your Marketing Budget

Hello, my friends, welcome. This is Emilio Garcia from Boundify, your host today to another episode of Boundify Live. Welcome everyone. As some of you already know, this is an episode or a series dedicated to B2B marketers who want to learn more about demand Generation for their B2B companies. And I'm really excited to be with you this time again. Today we have a topic that is a little bit related to something that we have discussed before around marketing budgets and marketing spending. In the previous episode I discussed how will you determine the size of your budget Depending on your KPIs and goals for the year. So it was more of an exercise of coming up with a number when you already have clear goals. But sometimes I have these conversations with prospect clients and they, they struggle heavily on, well, I already have a number. How do I justify it, you know, to the management, to the organization, because sometimes we lack references. So I wanted to have a conversation today about that topic and I hope you find it useful. For those of you as always that are joining live, please say hi if you are there on the chat, tell me where are you watching from. Will be great to have a conversation there. And if you have any questions, please, at any moment say Alejandro and Ruben. Hi, how are you guys? And so let's start right away. So the first one will be some references the, the general knowledge or. One of the fastest ways that I answer this question is to reference what the industry is doing in general. And you know, averages are sometimes misleading. But in general, from what I have read and hear from companies and from publications like Gardner, marketing budgets usually range between on the low end 5% and on the high end 15%. Most of them are on average around 10%. So if you want a quick, a quick reference point to your budget, you already have come up with some numbers and you want to present these to you, to management and you wonder if your budget is, you know, it makes sense. One quick rule that you can use is to compare to the revenue that you're going to have for the year. Or in some cases, if your budget is intended to increase revenue and marketing is expected to have a contribution, then you can use that number to justify the investment itself. Right? If I want to bring 1 million of additional revenue to the company, it will be reasonable thing that you can spend all up to 10 or 15% of that potential revenue on marketing efforts that will bring that money into fruit diction. So that will be a quick, a quick reference for you to have another one that is very powerful and is one that I Sometimes struggle because I have always, I have always think and tell my clients that when you look at the competition you are looking at for just references to make sure that you are not missing something, but not certainly to copy or just do exactly what they're doing. Because most of the time your competition is not completely direct. And the other option is that they might be making mistakes that you want to avoid. So you don't necessarily copy exactly what you're doing, of course, but you can use it as a reference. So another way, because that those percentages as low as 5% or as high as 15% are just reference points for the industry. But if you are in a specific industry, healthcare, education, in the case the, the ones that we know the best, like telecommunication, technology, they have their own numbers. And you can use that as a reference, right, Is to understand how much is your competition investing. And you can also take a look at the breakdown, right? Because that will highlight where their audiences and therefore yours might be spending time, right? So you want to look at the spending on traditional media versus digital mediums versus the mix between search engines and social media platforms and email marketing and all the different channels and mediums that you might have available. So you can, you can reference your competition in all those different ways, not just the overall amount, but the channels and how they are distributed. And also it's obviously a fantastic way to justify the investment because you can always tell management or your boss, you know, this is my number. And our competition is suspended twice as much or three times as much. And that reference become relevant because even if they are wasting a little bit of it, if you make that assumption, they will be in the marketplace at least a couple of times, you know, the reach will be greater and the frequency will be higher. And so you will lose against your competition in that reference point. So you don't have to copy, but at least you have to know where you stand. And if you have very aggressive goals and your budget is why below the, you know, the average of your competition, then you, you need to adjust your expectations. So that's really, really important. Another, another area of opportunity or how you can see these numbers is you need to be aware of, you know, current and future marketing trends. Because when you have come up with your budget, sometimes you need to consider investing in channels that are developing that where your audience might be. And you always have to take in advance or in consideration your audience, right? So this past year, for example, there's been TikTok, a channel that has been growing very, very rapidly. And they have already implemented some advertising there, but obviously TikTok is not going to be for any kind every kind of business right now. It might be on the future, but not for every kind of business right now because of the of the format of the mix of the audience itself. So you don't jump into a new channel just because it's hot or it's trendy. You do it one because it's not being talked about and it's hot. But also you have to consider your potential audience or your target audience is there or is going to be there during the year and in what how they will interact. So you have to define that. But considering that your audience will be targeted there, it makes sense to explore new marketing trends. Not just channels, but ways of marketing clients like chatbots or any other newer approaches that are always on the horizon. Now considering that, you have to also evaluate what you have done in the past and look for ways to understand if for example, last year you were very successful with content or you were very successful with advertising or any other medium or format of your advertising or marketing in general, then probably you want to double down on those. And for those that haven't worked, or maybe they were working in the past and now you are getting diminishing returns, then you adjust your investing and maybe that's another way that you can justify to go into new channels. You take a portion of what you have invested in the past that is not working anymore or is working less effectively and you move it into these new trends, into these new proposals you might have for the year. Now this moved me to the next point, which is usually to justify those changes either to enter into new marketing channels or to increase or bet on a new one for your company and reduce investing on something that have worked in the past. You have to have some KPIs or key performance indicators that will prove their return on investment on your marketing efforts. So that's really obviously really important. And there are here are some key things about them. Probably the first one is, and the most important one is that they should be aligned to your business goals because you can have KPIs that marketing might be pursuing, but they are not necessarily tied to the goals of the business. For example, I usually use this example as reference. If the business, if the CEO or the owner are interested on increasing social media presence and followers on a specific medium because that's part of the audience and the brand and all that, then it makes total sense to have as a KPI for marketing the number of followers or the engagement on a social media platform, it makes total sense because that's aligned with the business goal, even if not aligned to a revenue goal itself. But unless that's the case, if marketing is has immediate goals for followers or engagement, but the business really don't care about that or care less about them and more about the amount of either traffic to the website or engagement on the website, or qualified leads or even opportunities open through marketing, then there's going to be a misalignment. So the first thing you want to make sure on those KPIs that you will use to justify your budget is to make sure that they are aligned with your business. And here are some ideas of KPIs that you might use that might make sense to justify those investments. One of the very obvious ones is revenue growth or sales growth. That's an easy one. Marketing to some extent on all companies, in some of them to a lower degree and some of them to a higher degree, should eventually contribute to revenue growth either through repeated purchases or new purchases or a continuation of services. So revenue growth. And there are many different ways that you can justify or can you map out marketing contribution to revenue, but you have to find a way to prove that. So that's a great KPI. One probably that is in most companies nowadays. Other way that you can have a KPI that you might use to proof roid is customer retention rate. In this case, the focus is more about probably not new sales, but marketing, helping the organization to retain current clients or customers through repeated purchases or continuation of services. So that's another way that you can measure the impact that marketing is having on the company. The other one, also in a different context, usually important when you are exploring new mediums, is the customer acquisition cost. One of the reasons that you move into new channels and you test them compared to, you know, channels that have worked in the past, is that those channels that have worked in the past have become very saturated. There's a lot of people, their market is doing work there and you have this new medium, this new format where there's less competition and you might reduce the cost of acquiring a customer. So in those cases, customer acquisition cost or cac, it's a great KPI to measure the success of your marketing efforts or justify the investment on your marketing efforts. And finally, the other approach is to increase the lifetime value of the client, right? Is closely related to retention rate, but is not just retaining the client, but making sure that your offerings help the company to increase the amount of money that the comp that the client spent on the company over a longer period of time of course so there are some marketing efforts where the whole goal is to upsell clock cross sale or a combination of both and in those cases you will impact lifetime value for sure so those are some ideas that you can use to or have some KPIs to prove the ROI that will allow you to justify your marketing budget and and obviously justify the effort and that's all that I have for today. I hope you find this useful and remember if you are struggling with your marketing investment trying to find ways to reference the budget to something that management is aware of either reference to the industry percentage of investment on revenue compared to the competition or to your own KPIs the one that you define in the beginning and align them to your business goals and that will help you to have a justification for that marketing budget and see what works and what's not so has been a pleasure I hope you find the value and until the next episode bye bye.