Like many of us, I have just come out of our yearly budgeting process, a bit more worn and weary for the effort. Budgeting is the time we move from our right brain, creative side endeavors, and dust off our left brain activities to support the analytics required for estimating next year spends.
The typical challenge is to work with the CFO and other left-brain thinkers, on defending our proposed budgets. Of course, the typical questions arise: What ROI did we get from our investments last year? How are the investments this year used to support the revenue and sales goals for the organization? How did you determine the best use of the budget to optimize the ROI of the spending?
For many a weary CMO, getting answers to these questions can be a time consuming exercise, with more assumptions than facts built into the answers. However, now is the time to lay the foundation for 2008 to make this process easier and more productive for the entire organization.
- Understand revenue and sales goals, both in terms of new customers and existing customer sales.
- Determine the proportion of sales that marketing needs to support. The average company generates 30-40 percent of sales from direct marketing efforts. Leading companies are upwards of 80-90 percent.
- Determine new leads required to support the marketing-supported sales goal. This takes into account various metrics such as how many suspects turn into prospects (conversion rate), prospects into leads (qualification rate), leads to sales opportunities (sales qualification rate), and opportunities to deals (close rate). Working from sales back into leads, you can determine the amount of aggregate leads required.
- Review the average price per lead for lead generation activities to estimate total external spending required.
- Based on overall spend, review ROI of different methods and vendors to determine optimal placement of marketing dollars. Basing this assessment on past ROI of campaigns makes the assessment more valuable as an “apples to apples” comparison of options.
As the year progresses and actual results are generated for campaigns and marketing activities, you can compare results to assumptions to explain variances and make adjustments. So get a fresh start in 2008. You’ll feel better about budgeting as the end of the year rolls around, I guarantee.