I was with a group of CMOs last week, all of whom were knee-deep in developing their marketing budgets for 2012. The group was divided down the middle with half energized by the process and half dreading it as much as a root canal.
I used to be a member of the “dread it” crowd. But now I look forward to the marketing budget process.
I have the data to support how and where I spend my money. I know what works and what doesn’t. The CEO has set the revenue targets for next year. And I know precisely what my Marketing team has to do to hit those targets. To explain, I created a sample marketing budget below.
To perform this “magic trick”, you need to know a few things:
- 2012 revenue targets by quarter (and the bookings targets) – assume this is $1 million a quarter
- Average deal size – assume this is $50,000
- Conversion rates between stages
o Inquiry to MQL 10% (Marketing Qualified Lead)
o MQL to SAL 20% (Sales Accepted Lead)
o SAL to SQO 75% (Sales Qualified Opportunity)
o SQO to Win 25%
- Number of days between stages
o Inquiry to SQO 120 days
o SQO to Win 90 days
If you know these things, you are in great shape. It’s just a matter of working backwards.
Let’s say my revenue target in the first quarter is $1 million and my average deal size in $50,000. That means I need to close 20 deals in the quarter (20 X $50,000). To get those 20 closed deals I need to generate 80 SQOs (because my SQO to close rate is 25%). To get those 80 SQOs, I need 100 Sales Accepted Leads (because I have a 75% SAL to SQO rate); to get those 100 SALs I need 500 Marketing Qualified Leads; to get those 500 MQLs I need 5,000 inquiries.
To close 20 deals, you need to generate 5,000 inquiries! Sure, that’s a lot of work.
But assuming the numbers in this sample marketing budget hold true, that’s exactly what you need to do. (Note that in many cases, the Sales team generates many of their own opportunities. In this example, I am assuming that the $1 million target is all from the Marketing team.)
The next step involves the timing of the Inquiries. Deals take time to close. If you generate those 5,000 inquires now, they won’t close for about another 7 months. So, you need to look at the days between stages (we call it “velocity”) to understand when those inquiries and SQOs need to happen to make each quarter’s target. Inquiries generated this quarter will result in SQOs in about six months, and closed deals three months later.
Finally, you need to know how much marketing investment it will take to generate these inquiries. You can look at the marketing spend it took to generate last year’s inquiries to develop this number. If it was, say, $25 per inquiry, that would mean you need $125,000 to generate 5,000 inquiries.
The numbers don’t lie. This process is part of a broader strategy called Revenue Performance Management (RPM), which is about using data to optimize marketing and sales performance.
If you prepare well, know your numbers and work backwards, developing a marketing budget plan doesn’t have to be painful. Here’s to your 2012 marketing budgets!
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