Figuring out how much money to devote to generating leads is hard. You’ve heard that you have to spend money to make money, but how do you figure out that actual number? I’m going to show you the easiest way to calculate what your Marketing Budget should be.
At the end of our 2015 fiscal year I reorganized our Chart of Accounts and decided to take on the creation of a company-wide budget, line item by line item, for 2016. Marketing was a big part of what we needed to define as our word of mouth business was starting to slow down. We needed a budget so we could start doing some advertising and testing lead magnets. I didn’t have a lot to go on, so I did tons of research on figuring out Marketing Budgets and other Key Metrics for Sales. In the end, I created the first iteration of that budget using the formula I share here. As simplistic as it is, it was powerful enough to give me a clear answer using numbers I could accurately define.
The first thing you need to know is that your Marketing Budgets will be decided by two things:
- The money you’ve already made
- What your realistic income goals are for the coming term
These things are relational. By being honest and specific about these numbers, you can iterate on this formula over and over with success.
Step 1: Determining Your Cost Per Lead
For this you’ll need to know how many leads you interacted with and what you spent on advertising/marketing. These numbers should be from the entire previous year (or your fiscal year, if that is different). For a practical example let’s meet Sally and help her determine her cost per lead. Here are Sally’s numbers:
$75 is Sally’s Cost Per Lead. This is what she can expect to spend per lead to attract the same average project total as last year.
Step 2: Determine How Many Leads You Need to Hit Your Revenue Goals
For this step, you’ll need to know:
- Your previous year’s income
- How many leads you landed
The best thing about it, is that you can apply that formula to individual income streams, or use it to estimate what effect a price increase would do to your projected revenue (again, alter to reflect whatever your fiscal period is). So for Sally:
Now we see how many of those $3,065 projects it will take, or how many Leads she needs to close, for Sally to hit her goal.
THAT’S IT! That is Sally’s Marketing Budget (or your’s if you’ve been plugging your own numbers). And, what is best, is that you can apply that formula to individual income streams, or use it estimate what effect a price increase would have on your workload.
Marketing Budgets don’t have to be voodoo. Even if the numbers you plug in aren’t exact this year, a ballpark figure (for ad spend) is better than blowing major bucks because you just didn’t bother. Using this as a starting point I was able to define and refine 5 other subcategories for my Marketing budget. It helped me to identify some essential KPI’s for us to monitor and I now can plan for the future with confidence.
There are lots of helpful formulas and calculations out there, this is just one very basic method for the marketing budget impaired (like I was!). Share any methods or resources you’ve found helpful in the comments below. If you’ve got a ‘learn from me’ story about how NOT having a marketing budget caused you some pain please share that as well. There is power in understanding how to do these budgets, but also in knowing what can happen if you don’t!