036. Budgeting a Demand Gen Program for 2023

Sam hello everyone, this is Emilio Garcia. Welcome to another live session of the Mangen Studio. I'm really happy to have the opportunity to talk to you as in previous occasions. As always, if you are joining this live or watch this video later and have a question, put it on the chat and I'll try my best to answer it as soon as possible. And for those of you that will be listening this later in our podcast, subscribe and share with anyone that you feel will take advantage of it. Today topic would be budgeting a demand gen program for 2023, right? So this is the time of the year where this conversation makes total sense, right? Not just specifically for a demand generation effort, but in general for a marketing or digital marketing budgeting program. Usually this is the time of the year where those efforts are being discussed internally and with usually with management. And so obviously this is a conversation that I usually have with both clients and prospects at our agency. And today I want to have the opportunity to share with you some of the ways that you can tackle that particular dilemma or activity. So I'll dive right away into it. The first one probably is the most common recommendation and the most common way that most companies budget for marketing efforts. And the idea is quite simple. Usually when you don't have as a reference, you know, some goal or some benchmark that you want to accomplish, is very useful to just use the internal numbers from the company in terms of revenue and and have a percentage of that revenue, current revenue as your marketing budget. And from there you divide the activities. It's something that is quite common, especially on established companies where they already have ongoing marketing effort. And so generally here and there's some research that back how most companies in most industries allocate money to that. But generally most companies, if they don't have a very aggressive growth goal, right? So just marketing is an activity that works at the part of retaining current revenue and maybe growing it slightly for replacing some of the clients or some of the revenue that will be lost through the year. Then it makes sense to invest something between 5 and 10% of your current revenue in marketing activities. And these will be divided obviously in areas like ad spend, if you are doing any like media in general ad spend, human resources, right, the people that actually will drive the marketing effort or in this case the demand gen effort. And usually there's some technology or resources that are required to accomplish those initiatives. So this is the most basic way to budget for demand generation. Some things that I can say about who or what type of companies deviate from this are the ones that have a very aggressive goal in terms of growth and in those cases 5, 10% will not make it. Probably you will need to spend something north of 15, 20%. I have seen some very aggressive grow companies, especially on SaaS, right? Think Twitter at some point, right? But think, think growth companies are very aggressive on growth. They usually go into maybe 25, even 30% of their revenue goes back into the business in form of marketing efforts. Not all of them have to be advertising, but some kind of promotion or, or brand awareness play definitely is in the works. So this is the simplest. It's also very convenient and easy to track because usually that will match the budget that you had the previous year and it moves with the growth of the company. So if you have a very good year, your budget increases because the expectation for revenue probably is going to be the same. If the company or the economy is not doing so well. Usually that budget shrinks because being a percentage, it moves with the revenue flow. So that's the simplest way. It's not necessarily tied to a specific goal all the time or sometimes the goal is just marginal increment of revenue. So those are the ways that you can see it that way. Now the other way that you can and you know more than other way, usually when you are building a budget you also want to have some references and that way you build a case to support. Especially when you want to invest more and you want to justify that with your market, with your management. This is the way that you can support some of your more aggressive goals or more aggressive ideas or strategies and that's it. Based some of your marketing budget based on your competition, competitors, investment. So to put an example, especially in demand generation, if you want to generate demand through social media channels, it's quite easy to go to some tools and look at what they are doing on social, look at what they're doing on search engines. There's some, even some tools, I mentioned this one very frequently, spoo. That allows you to get an idea of how much they are investing. Right order of magnitude is not super accurate or super precise, but it gives you an idea of what your competition or the industry is doing out there. And obviously something similar you can sense or guess in traditional investment, right? Maybe trade shows or events or sponsorships or similar activities that are not certainly digital and you will see your competition doing some efforts there. So if you can for your industry get a sense of what your competitors are investing, then you can contrast that to your internal goals. And if you really want to step ahead and grow faster than the competition, it will be very hard to not consider their investment. You don't want necessarily to copy exactly what they're doing, right? In terms of investment or the strategies. That is not necessarily the point. The point is more about contrasting or giving up a reference that management can use to justify some of the efforts. And especially I'm working with marketing managers. I always say that it's very easy to start having a conversation with management if you start something with well, our competition expand expends, you know, two or three times what we are budgeting right now. And obviously unless you are very small compared to your biggest competitors, that will rise some brow eyebrows, right? And people will start asking question, well, why are we quoting so low or considering this smaller budget, again, not with the intention of necessarily replicate exactly what they're doing, but to give you that reference. So that's another way that you can, another data point that you can use to justify your investment. And finally, the one that I really like, the one that I feel is the most appropriate one, but definitely is the harder hardest to accomplish or to get a sense of is making your budget or creating your budget based on growth goals. Right? So in this scenario, very similar to what we were talking about or I was proposing on the percentage of current revenue. But the challenge here is imagine that you say well next year we want to grow X amount of our revenue and usually there's a way to accomplish that. It's not necessarily just growth across all industries, across all segments, across all demographics. You have some idea or management and sales, you have some idea of the areas where you want to grow. And so some examples are do we want to upsell and cross sell our current client base? Right. That will be one initial concept or question to ask. Do I have a lot of clients already that I think will benefit from other offers or other products that I sell or services? Another question might be well, maybe we have a healthy amount of opportunities, but we are not really good at either closing them at right success ratio or presenting the right proposal in terms of size of the of the deal. And even we are getting a lot of marketing qualified leads and SQLs, but they are not the quality that we need and or it takes a long time for us to bring revenue out of current opportunities. So opportunities around acquisition that will have some metrics. Finally there's the more traditional way of looking at it which is well, what can I do to bring more qualified leads, either sales qualified leads or marketing qualified leads and what can I do to increase awareness and engagement to our digital assets or properties. And so if you take in account all those areas where you can grow and the verticals and the countries and the product lines that you want to increase presence or increase revenue, then you can establish specific goals that will be, you will be able to measure or tie a revenue number to them, right? For example, you can say, well, I want to increase the upsell opportunities from, I don't know, $1 million per year to $2 million per year. So you want incremental investment or incremental revenue coming from cross sell and upsell opportunities of $1 million. And maybe you also want to increase the amount of revenue you're getting from your, from the financial sector or from the automotive sector or from enterprise in a given year. And so you start adding up those revenues or the number of clients. And then you need to, once you have those numbers right, you need to work backwards on the things that need to happen for you to accomplish that, right? So for example, if you have the revenue goals, usually that will be tied to, to a certain size of your clients or the opportunities, and then you will say, well, I need X amount of opportunities to be able to close these many. And then to have those opportunities I will need this amount of SQLs or MQLs and to have that I will need this amount of traffic or engagement. And you use the as baseline your current efforts, right? Your current presence, the current website traffic, and usually that you will be able to translate into specific investments, right? So if you are paying for that traffic somehow, then you will be able to transfer that into your pay search budget based on the traffic that you need to accomplish the additional revenue that you want to bring. Or if your efforts are going to be more about demand creation, you can get a good sense from social media platforms on how much it will cost to reach that particular ideal client profile or buyer committee on social media, something like LinkedIn or some ABM tools that will give you a sense of how much does it cost to reach your target accounts or your targeted buyers across the web, right? To put some example. And obviously you can transfer that to traditional channels like events and trade shows. But the key factor here is that usually you will have to make a decision on how much of that additional revenue that you want to bring you will commit as an investment to accomplish the goal. So the difference here is that when in the scenario, what I was saying, well, take your current revenue and invest a percentage of it in marketing, that investment is more of a replacement money versus in this scenario where you are really making what I will call a true investment. Because that revenue that you want to bring is net new. It's not replacement. You are carving from your current operations. And instead of just pocketing that as a profit, as a company you are going after this new market and then you have to make that choice, right? And it varies. Obviously some companies will expect from example, from every dollar that they invest in new marketing efforts to maybe deal three or four times that in the same time frame, like in a year, something that is more, that makes more sense or at least what I have seen especially on B2B SaaS, probably that will be the best scenario is that because of the nature of recurring software or recurring revenue from software, usually you want to commit between 9 and 12 months of your annual recurring revenue into acquiring a new client. Right? Because what will happen is that if you have a product that will stay with the client for the years to come, you are paying with one year of investment for 1, 2, 3, 4, 5 years depending on your retention rate. So that relationship, the return on investment that you are comfortable with, it's company specific but at the, at the end of the day is tied to that goal. And that way you can make those incremental investments whenever is required. So this is the, this is probably the best way or the kind of like the best concept that I like for budgeting. But that doesn't mean that is the only one you have to use. So if you really want to have a good benchmark, you can combine the three. Right. And obviously any other framework that you can come up with, you can base your investment or your basic baseline will be. Or let us take a percentage of the revenue that the company is expecting to, to bring next year and commit 5, 10% if we are very conservative in growth or something more like 15, 20% if we are more aggressive in our go growth expectations, even if we don't have a specifically a good idea of where we want to grow. So that will be your baseline. Then you go outside and look for benchmark from your competition to get a sense of how much they're investing on, on digital channels and traditional channels for demand generation. And then finally if you have a specific areas, you know, if there's. So they have to be a conversation with the sales and customer success team to come up with this of specific areas where you feel or you think that you want to grow and how much of revenue you want to bring for that. Then you can combine that first very specific or objective oriented effort and see how it goes along. With the order to estimate and bring a consensus on that one. And that's probably the best way to go around it, which I highly recommend. So I hope you have find this helpful and I look forward to our next episode. I hope that you find it useful. If you have any questions just put it on the chat and I will try to reach out as soon as possible. Has been a pleasure and see you at the next episode. Thank you.