marketing budget

Budgeting for Marketing Activities – 2

B2B, budget, Marketing, Marketing Stamina

In yesterday’s post I showcased a quick and dirty method to identify your budget for doing marketing activities. Once you have identified with your rough calculation the amount of marketing budget you need to ask for and the outcome you have to deliver, you now need to figure out how you will go about your campaigns

In B2B the lead time to get an order is quite large – large is a relative term – depending on the size of the deals that you are looking for. The second characteristic of the B2B market is that generally there is no impulse buying especially in the mid to large companies. The third characteristic is that there are multiple buyers involved in most B2B deals, so the inertia is larger and the decision cycle is complex.

What this means is that you have to have the marketing stamina to ensure that you are able to consistently get in front of the customer with your content so that when the need arises at the customer end, you are in front of them and they call you first.

The advantage with B2B customers is that they are what Dean Jackson would call as semi visible. Meaning you can get a list of companies for most combinations. However within the company its difficult to identify who are the people involved with what you sell and the dynamics within them. Where are the power centers that you need to be aware of.

Since it is easy to identify them, B2B customers are inundated with a whole lot of marketing material. the other challenge is that even if you know say the decision maker is a CFO, chances are that the research on a new vendor or product will be done by a junior who will be assigned the job. So you either run parallel campaigns for different levels, or you run the campaigns in such a way that the people can easily remember you and handover details to the person who is researching.

Due to this I used the term, Marketing Stamina. It takes time to build a momentum before which you can get some real enquiries.

Till next time then.

Carpe Diem!!!

Budgeting for marketing activities

budget, life time value, Marketing

If there’s something successful about your model to regularly get clients, why would you ever want to limit your spending in marketing. Budgeting is effectively putting limits on what you are allowed to spend.

In case you are an entrepreneur and have your business, then the above argument would hold.

However when you work in a corporate setup, then every department gets allocated money because there are a lot of interdependent activities involved.

So if you work in a corporate environment or advise people in a corporate environment then below is my quick and dirty method of calculating what you may want to demand for your activities.

It starts with identifying what is the average life time value of a client for you. Do you have clients who give you recurring revenue or one time. Do you have repeat business possibilities including up-sell, maintenance charges etc. Put all of this together.

You can do this on a simple calculator and napkin.

Let’s assume you realize that your average lifetime value in revenue is $100000 over a period of 5 years and you would make gross 25% margin, then any new client has a potential to averagely give you a gross margin of $25000/- over the life of the customer or $5000 per year over 5 years.

To keep things simple I have not accounted for the referrals some of the customers may give you or additional activities during the term of the order.

So now we look at the first year – gross margin as $5000. This is the figure we will need to work on.

So suppose you were to be willing to forsake $5000/- to get a customer, you would be assured of getting a profit of $20000 over the next four years. If you have capacity then any additional business will not increase costs substantially. If you don’t have capacity then, this is not necessarily a good idea.

But for argument let’s say you have capacity, but you may still incur incidental costs of $2500. You still have $2500 you can happily spend to earn $20000 over the next 4 years.

The next item to look at is – what is the available capacity in your factory/delivery. So if your factory can deliver 10 more projects over the next 5 years, then you have to get 10 new customers for the factory.

So now you have a simple budget $2500×10 customers equals $25000/- to get an additional revenue of $1 Million (10 customers *$100000/customer)

So you need to now plan how you will spend the $25000/- such that you can ensure 10 customers come your way to your finance.

Till next time then.

Carpe Diem!!!