Summary: Marketing VPs and CEOs at data storage and data management firms can use these 5 techniques to generate more sales for the same budget by thinking strategically about how they allocate money.
I think it fair to say that most executives take a tactical, rather than a strategic, approach to the marketing budget. For the most part they take last year’s budget and adjust it up or down or they base it on a percentage of revenue. Then they apply the relatively small changes to their existing expenditures. Accordingly, firms set in motion a marketing program that may not provide them with any competitive advantage. And for most, that’s OK. It is good enough not to be at a competitive disadvantage.
However, it’s possible to gain a competitive advantage at budget time. By that, I mean a small sales-centric firm can “punch above its weight” and generate more sales for the same budget by thinking strategically about how it allocates money.
Strategic budgeting also makes it possible to overcome many of the B2B marketing challenges:
A worthy goal is to maximize the funds that are applied to lead generation and lead management. What’s a lead? It’s not a web page visit, a click, or a rented list. A lead, according to Marketingsage’s definition is “a sales opportunity-related request with actionable contact information recorded by [you].” These actionable requests are reliably generated by paid promotions such as online advertising, trade shows and email campaigns, especially when supported by product-centric PR and highly selective participation in social media.
Another goal, for business with a resale or distribution channel, might be to increase the funds available for sales incentives directly tied to revenue. For example, paying market development funds to resellers only when they meet a set revenue objective.
Regardless of the promotion or incentive, strategic budgeting usually comes down to applying money to programs and campaigns that have a direct, or highly influential, impact on sales. So if your budget is not increasing, you are really making a decision to take funding from something or someone so you can apply the money to something or someone else that may have a greater impact on sales.
That’s why strategic budgeting is tough. Almost all marketing program and campaign will have their merits and supporters. However, the fact that it tough to do is also the reason why it’s possible for some to out perform peers with the same budget.
With that said, I’ll highlight my top 5 techniques for strategic budgeting.
Calculate What your Promotional Budget Should Be
When you have a revenue target, a lead-to-sale close rate, an average cost per lead and an average customer value you can estimate how many leads you’ll need and the required budget.
For example, if you pay the industry average of $60 for an information request type lead (e.g. white papers download), and your lead-to-sale close rate is 0.5%. You can calculate that you need 200 leads per sale and those leads will cost $12,000. If this year’s revenue target is $10-million and the average customer generates $100,000, you need 100 customers. The 20,000 leads you need for 100 customers will cost $1.2-million in promotions.
Of course, a happy customer can be expected to purchase more and the cost of incremental sales to existing customers will be far lower.
When you do this for the first time you may fund the numbers quite sobering. That’s not a bad thing because the strategic marketer will use this calculation to push back on unrealistic expectations and goals or to justify the appropriate budget for the targets set.
Adopt an Opportunity Cost Perspective
The average cost for an information request type lead (e.g. a white paper download) in the data storage industry is ~$60. As such, you’ll find it helpful to think of each $10,000 that is not spent on lead generation as 166 lost leads. You can translate that into foregone revenue when you calculate your own close rate and expected average value of a customer – $83,000 using the above example (more if customers have a recurring value).
Thinking in terms of lost leads is very helpful when making judgment calls. For example, should you spend $60,000 to upgrade the trade show booth? Yes, if you think it will deliver a return greater than ~1000 leads – $500,000 in new revenue using the above example.
The same question can be applied to the purchase of marketing analytics tools, paid analyst relationships, promotional giveaways, internal sales meetings, custom creative, etc. If you are the CEO, you can apply this opportunity cost perspective when allocating budget to other departments, rather than to marketing.
If it takes an average of 3 months to convert a sales lead to a customer your fourth quarter promotions are driving next year’s revenue, not this year’s. Therefore a strategic marketer will invest almost everything early in the year to drive sales. Early sales success can be used to justify, and fund, the additional budget required to sustain the momentum later in the year.
Although the data storage and data management industry is not as seasonal as bathing suits and snow blowers, it does have some peaks and troughs that should be taken account. For example, summer months tend to be slower and government and educational customers purchase in cycles. Strategically it may make sense to execute the bulk of your lead generating promotions in the first 5 months of the year.
The word “execute” is important here because it takes 4 to 8 weeks to prepare most promotions – longer for trade shows. Add months and quarters if you need to hire staff, plan and/or build consensus.
Executing lead generating promotions on time with sufficient budget is paramount to success. Your ability to do this will depend on having the right skills at the right time. Therefore, strategic marketers think about talent before they decide whether to hire employees, agencies and/or contractors.
Your choices here are critical simply because talent is likely to be your largest single expense. Typically talent expenses, including payroll, annual analyst contracts, and agencies can consume 60% to 90% of a marketing budget so productivity gains can make a huge difference if savings can be directed into sales programs and lead generating campaigns.
Whether you can redirect savings from increased productivity depends on whether your talent expenses are fixed or discretionary. Payroll is essentially a fixed costs so sales-centric productivity is key. If an employee costing $150,000 per year is spending just 20% of their time on irrelevant tasks, you are effectively forfeiting $30,000 worth of leads. Using the above example, that’s 500 leads that could drive $250,000 in revenue.
On the other hand, outsourced talent is typically discretionary so you can use the services for what you want, when you want, for as long as you want. There usually very little, if any, “busy work.”
Therefore, the strategic marketer minimizes fixed expenses by keeping the number of employees to an absolute minimum and ensuring that the vast majority of everyone’s time is spent on activities that can impact sales. Many deliberately under-staff for 3 reasons:
- Employees, and everyone who demands their time, are forced to prioritize.
- To get everything done, tasks will need to be outsourced. Therefore the value and cost of the task will more visible and it will get more consideration (see note on the Opportunity Cost Perspective).
- Discretionary budget can be more easily reallocated to sales programs.
Of course every situation is different, but based on decades of experience I’ll offer this rule of thumb:
≤60% of the talent portion of the budget should be allocated to employee payroll, bonuses and benefits and tools (including the VP of Marketing). The most productive teams have experienced product marketers with deep knowledge of the products and industry.
Their job is to manage the day-to-day tasks that cannot or should not be managed by outside agencies. These include liaising with customers, vendors, technology partners, resale partners, salespeople and engineers. This interaction allows them to:
- Define the strategy, budgets, and timing.
- Define the product and company positioning.
- Tee-up press announcements and the outsourced development of sales tools (case studies, brochures, video, etc.)
- Make decisions about product pricing, sales programs and promotional investments (lead quality, the acceptable cost per lead, tactical placements, events, etc.)
≥40% of the talent portion of the budget should be allocated to outsourced services such as PR, creative services, media buying, event management and strategic counsel – tasks that are performed better by people with broad media relationships, independent perspectives, and specialist skills. For most firms these tasks do not fill a 40 hour week and specialist skills, contacts and tools make it difficult to hire an effective do-it-all employee. Additionally, many of these tasks need to be executed simultaneously during certain periods of the year requiring bandwidth that just not available from a highly productive internal team.
A highly productive small tech firm marketing a B2B product like storage or data management software can compete using an experienced product-centric VP of marketing, a senior marketing manager, and one full service agency (like my PR and lead generation firm, Marketingsage
Such an organization would typically:
- Run 20-25 simultaneous adverting campaigns, including creative, landing pages and lead capture.
- Generate 10-12 press announcements per year and brief press/analysts each time.
- Run quarterly reseller inventive programs.
- Attend 6 or so domestic trade shows.
- Run 8 to 12 prospect lead nurturing email campaigns.
- Manage the process for 4 or so interoperability certifications.
- Author and layout 4 or so white papers.
- Author and layout 6 or so case studies.
- Produce 20 minutes worth of videos.
- Maintain the web site.
- Maintain a corporate blog.
- Selectively participate in sales-centric social media discussions.
Fast, Good, Cheap
You’ve heard the saying: You can have it fast, good or cheap. Pick any 2. For a marketer at a small firm in the storage and data management sector the priority is clear: Fast and good (enough). Cheap is not the strategic option, even for a cost conscious marketer. Here’s why:
Time is your enemy. The market is highly competitive so a better or less expensive product will emerge soon – maybe before you see an ROI on your current development efforts. This could leave you at a competitive disadvantage with unsold inventory, depressed margins and higher promotional costs. Additionally, if your firm does not yet have a positive cash flow, time is burning up your available capital. Ask the CFO what’s preferable: spending an extra 20% on an agency that can execute now; or burning 3 months of expenses for the whole company while you go through a hiring or orientation process.
Obviously fast and bad will not win you customers. However, don’t let perfect become the enemy of good enough. Good enough is faster and less expensive than perfect. You’re in the B2B IT market, not the fashion market, so let your competitors waste time and money on custom art, billboards, golf sponsorships, and chotskies while you deliver what prospects want – timely information that helps them choose your product over the alternatives!
About the Author
David X. Lamont is an accomplished marketer of IT products and a partner at Marketingsage, a PR and lead generation firm that specializes in marketing data storage, data management, and enterprise software products. He can be reached by email at blog [at] marketingsage.net. Fellow marketers and IT professionals are invited to join his network on LinkedIn and to subscribe to this blog (see sidebar).