Calculating the return on investment is an age-old question when it comes to allocating a budget for marketing.
Unquestionably, setting a marketing budget and determining an appropriate ROI are linked. However, they are not the only numbers you should be considering when formulating your marketing and sales approach.
Start with strategy, including numeric targets
Regular readers of my posts will be aware that I believe fervently in starting with a strategy. Planning is crucial to producing a winning marketing program. That said, it’s quite astonishing how many businesses still fail to include their revenue and margin numbers in the strategy process.
Financial targets are central to the marketing process and should be the basis for your planning. If you have a revenue goal, for example $10 million, then your planning should focus on how you can achieve this number – or better if possible.
Examine your targeted growth areas as part of the number crunching. For example, if you’re focused on delivering a specific service or offering, make it pivotal to your plan. A systematic approach to your marketing dollars will help you target the right client, with the right message, at the right time.
Many ways to cut a budget
There are several ways to arrive at a suitable marketing budget. One method involves settling on a percentage of your revenue target. A reasonable budget is typically about 4 per cent of revenue. For example, if you’re targeting $10 million in revenue, then budget $400,000 for marketing.
Taking a bottom-up approach is another method. In other words, build your program, cost it, then decide if it’s an affordable figure. Ultimately, the size of your budget will be determined by whether you judge marketing to be a cost or an investment. If you don’t consider it to be an investment in your business, then you’ll struggle to generate value from your activities.
When it’s time to determine the ROI, the most understandable measurement method is to tie marketing spending to the dollars earned from the program. It’s simplistic, but it’s accurate on many levels.
Consider the leads you want to generate, the conversion rates and the revenues these targets can deliver. It’s the same for digital and content marketing. You need to track a number of metrics to understand your true success or failure.
Understanding not only the ROI from your marketing activities but also the KPIs you’ll need to tick off to achieve it, is just another aspect of owning a successful marketing strategy.