B2B marketing budget: strategies, formulas, and ROI insights

Let’s talk budget. 

Your marketing budget is a critical aspect of your strategy, and how you allocate your resources can significantly impact your success. In this blog, we'll delve into the key considerations for budgeting in B2B marketing, providing insights into what you need to know to make the most of your marketing budget.

Determining your marketing budget

The question of how much to allocate to your marketing budget is a common one, and the answer varies based on your business goals, industry, and resources. Here are some important considerations:

% of Revenue

Start by researching industry benchmarks for marketing spending. Most B2B marketing budgets in NZ fall within the range of 5% to 12% of total revenue. However, some industries, like SaaS (software as a service), may allocate as much as 40% of revenue to marketing, especially if very new to market and still in major customer acquisition mode. Smaller businesses typically also have a higher percentage of revenue as their marketing budget. Unfortunately, when you’re smaller or early-stage, you need to buy those eyeballs more so than larger, more established brands.

Clear goals

Setting clear marketing goals is essential to understanding your budget needs. If your aim is to build brand awareness, your budget may be lower. However, if you're focused on driving highly qualified leads, you may need a larger budget.

Channel allocation

Consider the channels you plan to use in your marketing efforts. While platforms like LinkedIn can be highly effective for reaching a B2B audience, they are often more expensive than alternative social media channels. Quality should always take precedence over quantity when it comes to channel selection.

Customer lifetime value (CLV)

Understanding your CLV is crucial. If a customer is worth a significant amount over their lifetime, a higher marketing budget can be justified even if it results in converting just one customer.

For example, if your average customer lifetime value is $100,000, you might be willing to spend ~10% of that to acquire them ie. $10,000. 

Cost to acquire a customer (CAC)

Knowing how much it actually costs to acquire a customer will help you determine your budget. With this information, you can reverse engineer your budget based on your goals.

To calculate Cost to Acquire a Customer (CAC) more succinctly, you can use the following basic formula:

CAC = Total costs of sales and marketing / Number of new customers acquired

 Where:

• Total costs of sales and marketing includes all expenses related to marketing and sales efforts within a specific time period. This encompasses advertising costs, marketing staff salaries, sales team commissions, costs of marketing tools and software, and a portion of overhead costs allocated to these activities.

• Number of new customers acquired is the total number of new customers gained in the same time period.

This formula gives you a straightforward way to calculate the average cost incurred to acquire each new customer. Remember, for a more nuanced understanding, you may still need to consider factors like customer segmentation, channel efficiency, and the relation between CAC and the lifetime value of customers (LTV).

Conversion rates

Track how many of these leads convert into actual customers. This is crucial in B2B contexts where the sales cycle is often longer and more complex. It can be really hard to really establish where and when a lead entered the funnel, especially when the sales cycle can be upwards of a year in some cases.

Understanding your conversion rates at each stage of the customer journey is essential. By knowing the average conversion rates from initial inquiry to purchase, you can figure out how many leads you need to reach your goals.

Example:

You may typically win 50% of proposals presented. But to get to the proposal stage, perhaps only 20% of prospects will meet your requirements during the discovery phase. To even get to the discovery call stage, only about 10% of prospects in your pipeline will book a call or a demo. 

Therefore, we know we need to have:

Leads = 100

• Discovery Calls = 10 (10%)

• Proposal = 2 (20%)

• Win = 1 (50%) 
  

Balance of digital vs. traditional

Consider the proportion of your budget for digital compared to other marketing activities. Depending on your goals, you may need to allocate a larger proportion to digital channels.

Audience size

Understand the size of your audience or potential customers. A larger audience may require a higher budget to reach effectively.

Measuring ROI

Allocating your budget is just the first step. Understanding what’s effective requires regular analysis of the return on investment (ROI) of your marketing campaigns. It’s not easy nor straightforward, but here are some tips. 

• Have clear goals and objectives: Define what success looks like for your marketing efforts, whether it's generating leads, closing sales, increasing brand awareness, or other specific goals. Don’t try to measure too much or you’ll get lost in a sea of meaningless data. 

• Make it SMART, for example:

• Close $100k of new business per quarter 

• Acquire 10 marketing qualified leads each month

• Grow email database from 5k to 10k by end of financial year

• Evaluate sales growth: Assess the direct impact of marketing activities on sales growth. This involves comparing sales figures before and after specific marketing campaigns.

• Assess brand awareness and perception: Use surveys, brand recognition studies, and social listening tools to evaluate changes in brand awareness and perception as a result of your marketing efforts.

• Use marketing attribution models: Implement attribution models to understand which marketing channels and touchpoints contribute most effectively to lead generation and conversions.
  

Consider intangible benefits: Recognise that not all benefits of marketing are directly quantifiable. Improvements in customer relationships, brand equity, and market positioning are also important indicators of success.