The Wrong Question: How Much Should My Business Budget for Marketing Be?

The question we should really be asking is, “what are our revenue goals and what does our marketing need to do to bring us enough conversion opportunities to make the sales hit those goals?”

Before anyone can answer this question about their business, they need to know a few things.

What Is A Conversion Opportunity?

In its simplest form, a conversion opportunity is either a phone call or email from a prospective customer, or a filled out form on your site. For retailers, it may also include someone who walks into your store.

Next, you must analyze your current marketing capabilities and financial performance. You wouldn’t fire a gun unless you knew the exact target you needed to hit – marketing is the same. Define your targets.

Almost all of the businesses I have worked with to create their marketing strategy/ plans who make under $5 Million in annual revenues were not asking this question, or performing proper analysis to clearly define their targets before I started working with them.

What To Analyze

To REALLY answer what your marketing needs to do in order to bring you enough conversion opportunities, you need to analyze the following:

• Monthly P&L (profit and loss) statements for the last 12-24 months


• Monthly marketing activities and the revenue yield of each activity


• Examine existing conversion results


• Determine the performance of top and emerging markets


• Analyze the financial yield of your existing customer base

Think about it for a moment, as you read these items did the word “marketing” jump into your mind ? Probably not. These sound more like what a management consultant might help with, right? Not so.

In today’s marketing world there are so many tools and resources businesses have at their disposal that it all becomes confusing – especially when it comes to figuring out what to include in the budget and how much to spend on each area.

You can click on the following link for our free guide: what to include in a modern day business marketing budget.

In the meantime, let’s examine what to analyze to figure out exactly how to define your marketing targets – so you have a better chance of hitting them. Read on!

What Profit & Loss, and other financial statements, will tell you about marketing

You want to measure for the cost efficiency of marketing and revenue yield trends by looking at the following.

1. Average marketing spend as a percentage of the total revenues and percentage of total expenses


2. For every $1 spent on marketing, the dollars in revenue generated


3. Breakdown the categories of marketing expenses (payroll, systems, services like SEM/SEO, PPC, print ads, content marketing)


4. All billings for each customer for the last 12-24 months (this should also include which city they are located in)


5. COGS (Cost of Goods Sold)

Most businesses who are launching a new product or service, or opening up new markets, should budget a total of 18% to 25% of their total revenues for marketing.

Established businesses who want to maintain their brand share in their existing markets should budget a total of 8% – 10% of their total revenues for marketing.

WARNING: If you are spending under 5% of your total revenue, it is likely that you are starving your marketing resources and the chances of them being successful are low.

What marketing results should we measure and what do they tell me?

The Internet has provided businesses with a lot of great tools – like Google Analytics – to measure the traffic that visits your web site.

For companies that have physical retail locations, you can measure people count using sensors. These integrate with your inventory management and sales systems to help you understand conversion on specific items on the shelf.

You can tell a lot by measuring your web site traffic. The following enables you to zero in on how well activities related to your paid ads (PPC), organic search (SEO), social promotion, print ads and local optimization (local citations and such) activities are converting.

1. Unique and New Visitors


2. Bounce Rate


3. Top referral sources


4. Source of traffic by volume and percentage


5. Unique visitors by location


6. Sales win/loss % by source

You are looking to find the sources and locations of your internet traffic – where are they and do they match where you want customers to come from (both physically and by referral source)?

If they don’t, you will need to adjust how your site is locally optimized and where you are targeting ads.

For example, if you are spending a lot of money on LinkedIn and Facebook advertising, but not on SEO (search engine optimization), and all the referrals to your site are coming from search engines (like shown below), you are not getting yield from that marketing spend.

Referrals from the direct traffic source indicate that the marketing you are doing which lists your URL may be working because visitors are typing your URL directly into the browser and not using a search engine to find you.

This could also be a result from good branding – which internet marketing also impacts. Understanding these basic metrics helps you determine your most profitable marketing tactics.

What does combining marketing activity and financial analysis tell me?

Now, put it all together to get a clear picture of what your marketing campaigns are giving you. You need to understand revenue yield (or ROI) on how you are spending your marketing budget, and if it is paying off how, and where, you need it to.

Measure the following at minimum to determine

1. Revenue per referral source


2. Average Revenue per Customer


3. Average Revenue per Market


4. Cost per New Conversion


5. Cost per New Customer

What should I communicate to my marketing team?

As the owner or executive of a company, in order to enable absolute clarity and focus from your marketing team, you should communicate the following as goals.

• We need to bring in X new conversion opportunities at a cost of $Y per opportunity


• Our average revenue per Customer needs to be at least $A


• We need to grow B and C markets by Z% given our average revenue per Customer


• Our total revenue goal for this period (year, quarter, month) is $D revenues

This is very different than telling your marketing resources to go get more leads, so we can increase revenues.

It’s important to be clear on your revenue goals. Not sure where to go from here? Fannit helps companies work through this process, making sure their marketing spend is pointed at the right target(s) and is efficient.

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