If you’re a CMO, Head of marketing, VP of marketing or even a marketing manager (heck even a founder for a young start-up) one of your key responsibilities in a marketing leadership role is to make sure that the marketing budget is utilized as effectively as humanly possible.
And it does not matter whether you’re managing a million dollar a month marketing budget or a $5k per month marketing budget, this decision is equally critical and challenging.
In this blog we will aim to lay out a guideline that will provide you clarity on your job as you make this crucial decision.
Common budget allocation methods
There are several methods that companies can use to allocate their budgets, each with its own strengths and limitations. In this section, we will explore three of the most commonly used budget allocation methods: top-down, bottom-up, and zero-based budgeting.
The top-down approach is a budget allocation method that starts with a company's overall revenue target and then allocates a portion of that revenue to each department or function. This method is often used by companies that have a centralized decision-making process and want to ensure that budget decisions are aligned with the company's overall strategy. The advantage of this approach is that it can provide a clear direction for the entire organization and ensure that everyone is working towards a common goal. However, it can also be inflexible and may not account for the specific needs of individual departments.
The bottom-up approach is a budget allocation method that starts with individual departments or functions and then aggregates their budget requests to determine the overall budget for the company. This method is often used by companies that want to ensure that each department's needs are taken into account and that the budget is allocated in a fair and equitable manner. The advantage of this approach is that it provides a more detailed picture of the needs and goals of each department, which can help to ensure that budget decisions are more informed. However, it can also result in a fragmented approach to budgeting and may not be as aligned with the company's overall strategy.
Zero-based budgeting is a budget allocation method that starts from scratch each year and evaluates all expenses, regardless of their previous level of funding. This method is often used by companies that want to ensure that all expenses are justified and that the budget is allocated to the areas that will have the biggest impact on the company's success. The advantage of this approach is that it can help to identify areas where expenses can be reduced and ensure that budget decisions are based on current needs and goals. However, it can also be time-consuming and may not take into account the long-term implications of budget decisions.
Key factors to consider when allocating budget
Determining marketing goals and objectives
What goals does your marketing budget need to accomplish?
This is dependent on the stage and resources of the company.
Typically for a seed or series A start-up having between 10-15 people marketing has a single goal i.e. initial traction or customer acquisition.
Once you break through that initial traction layer and reach series B mark which is typically around 20-50 employees marketing needs to play multiple roles, it now needs to work as a customer acquisition, reputation management (brand building) and positioning.
While there are moving parts in objectives of a marketing budget, a general system to ensure the right allocation would include the steps below:
1- Remember your target audience:
Understanding your target audience is where any marketing strategy and tactic starts. Make sure you are clear on who you are trying to reach in your communication, this would affect where you reach them and at what cost.
You might already have that nailed down, if not, this is a good time to get it done.
2- Assess current marketing efforts (if any):
There are always winners and losers when it comes to marketing programs, this is the time to identify them. Find your winners and cut your losers this will give you access to more resources which then could be directed either towards your winning campaigns or new growth initiatives all together.
3- Identify business goals:
Align marketing goals with overall business objectives to ensure they are aligned and complementary. This includes both short-term and long-term goals and will help guide the budget allocation process. Some common business goals for B2B SaaS companies include:
1- Increasing brand awareness
2- Generating leads and sales
3- Improving customer engagement and retention
4- Expanding market reach and target audience
5- Launching new products or services
6- Improving customer experience and satisfaction
7- Introducing new product capabilities
8- New products for new market segments
4- Conduct competitor analysis:
Understanding the market and your competition will help you see which opportunities are saturated and which are underutilized. This if done well, could unlock very high marketing efficiency as it can differentiate you in the way you go to market.
5- Set SMART goals:
Use the SMART (specific, measurable, achievable, relevant, and time-bound) framework to create actionable and measurable goals.
Marketing budget allocation model at Rumors
We generally use a top down approach. I like to divide my marketing budget into three key areas:
These are subdivided as per the image below
The ratio of allocation in each area would depend on our objective and goals which we clarified as per our previous discussion.
Let’s assume a scenario of a b2b SaaS company with $8 million ARR and 30 employees. The gross marketing budget is 8000,000. (10% of total revenue)
1- Headcount (37.5% - $300k / year)
First question I like to ask myself is “how many people do I need to run this?”.
For our given scenario, I would use 1 person for each sub-division i.e.
- 1 person for marketing operation ($70k)
Responsible for logistics, technology, data, attribution and automation
- 1 person for media ($110k)
Ads, Organic distribution of content, social media, SEO
- 1 person for creative ($80k)
- Outsourcing budget i.e. content writers, consultants etc. ($40k)
2- Programs (57% - $456k / year)
- Paid ($300k / yr)
This is entails mostly paid media advertising responsible for sales pipeline generation:
- Facebook/Instagram ($60k /yr)
- Google advertising ($120k /yr)
- LinkedIn Advertising ($60k /yr)
- Newsletter advertising ($60k /yr)
- Communications & PR / Organic content ($72k /yr)
This includes our top of funnel reputation building and awareness generation efforts
- SEO ($48k /yr)
- PR / Traditional media awareness ($24k /yr)
- Events ($48k /yr)
All sales and marketing events whether they are online or offline.
- Physical ($36k /yr)
These would be 1 or 2 in the year.
- Digital ($12k /yr)
- Sponsorships and Partnerships ($36k/yr)
This would be any co hosted events or sponsorships in industry publications.
3- Technology (5.5% - $44k / year)
Collective spend for technology including CRM and other tools.
4- Experiments ( # )
This budget will mainly come once we optimize our current channels and potentially recoup some budget from underperforming or low ROI activities. In some cases there is a separate experimentation budget on company level as well (rarely).
Hope this helps you as you try map out a direction for you company's marketing future.