In this article we'll discuss the key factors to consider when creating a demand generation budget from scratch, including revenue goals, go-to-market strategy, funnel metrics, sales resources, and channel ROI.
A strong demand generation program allows a company to predictably scale the number of opportunities sourced by simply increasing marketing spend. Since most demand generation campaigns take several months to ramp up and generate results, it's important to create a plan and a detailed budget at the beginning of each year. This budget should support your company's revenue goals, and should be reviewed every quarter.
Now more than ever, marketers are just as responsible for revenue as the sales team. With the advent of different tactics to target people at specific stages, we can effectively carry out full-cycle marketing. Marketers now have the strategy, knowledge, and responsibility to close the loop with demand generation.
Doubling traffic doesn’t always equal to doubling revenue. There are a number of variables that come into play within your demand generation programs. For example, if your ABM program contains three plays - LinkedIn, Facebook Retargeting, and Email - you might see that LinkedIn generated the most leads and decide to increase your LinkedIn budget this year. However, increasing the budget for that play alone may not get you the same lead rate without the other two plays working all together.
Your resource constraint is likely time or money. Either there isn’t enough time to hit your goals, or most likely you need to hit your goals within a realistic budget. The more you can prove the correlation between your investment and your ROI, the more budget will be unlocked for your team.
There are several variables that should be considered when building your demand generation budget:
The most important variables you need a clear understanding of are: 1) your company’s revenue goals, and 2) what is Marketing’s contribution to these revenue goals? These numbers should all be clearly defined before building your budget.
See the example below. If your current ARR is $7.5M and your goal for 2022 is $13.5M, you are looking to add $6M in new ARR (about 80% growth). The first thing you need to understand is how much of this is Marketing’s responsibility? Make sure you have a clear understanding about how attribution is divided between Sales and Marketing efforts.
Assuming this goal is split evenly between Sales and Marketing and your company’s win rate is 20%, you’ll need $15M in pipeline (333 Opportunities) to close $3M in revenue.
Your Go-to-Market strategy will affect the way you build your budget. Are you a high-volume, transactional type of SaaS? Or an enterprise/mid-market, high-ticket B2B requiring multiple marketing or sales touches, and with multiple decision makers? The way you allocate your budget will change depending on how many marketing touches you will need to convert an account, with Marketing having nearly all of the responsibility in high-velocity SaaS.
Your overall Customer Acquisition Cost (CAC) serves as a reality check - how much does it cost (on average) to acquire a new customer? While CAC by channel will tell you what programs are the best at generating opportunities, as we mentioned previously, all programs should play together. ☺ Finally, how many leads can you expect to be generated inbound? This will help you see how much to focus on ABM.
In SaaS, the average payback period is 12 months. This means that if you’re looking to drive a $100,000 deal, it’s going to be an average $100,000 overall CAC (including resources other than marketing) . This means that if you have a $1M budget, it is very unlikely you can drive $10M in ARR. Keep goals realistic and use this number as a benchmark when planning your budget for 2022.
The formula for calculating CAC is as follows: Total cost of Sales+Marketing / # of deals closed
A big factor in your budget planning will also be your company’s funnel metrics. For Example: The conversion rates from lead → oppt, oppt → closed/won, etc. This information will tell you how much money you need to spend to generate an opportunity.
The tighter grasp you have on these funnel metrics, the better. You want to have this funnel model built as clearly as possible so you can predict, or better, forecast how many leads you’ll need to generate to reach your revenue goals.
If you are an early-stage company you might have to make a lot of assumptions about these metrics, but, if you’ve invested any marketing budget in 2020 and 2021, you should have some idea of what it takes to drive results for your company.
For each channel that you’re leveraging, you need to analyze how much money was spent and how many opportunities each of them generated. This can become tricky for larger enterprises with many different touches, but is very important information for building out next year’s budget.
Whichever model you use for attribution, just make sure all of the data is accurate and complete (otherwise it won’t be useful). Learn more about B2B attribution.
Once you define your budget and find your average cost per SQL, you need to decide how to allocate this budget by channel. You don’t want to just push all of your budget onto the top performing channel because it is the combination of all these channels working together that drives the SQL result.
To build your ABM budget effectively, it is also important to segment your accounts. Whether it be by region or target fit, segmenting your accounts ensures even targeting across your tiers. You can also assign a budget per target account for each tier when segmenting the budget.
When you put your budget together, it might looks something like this:
SaaSMQL is an Account-Based Marketing agency that helps SaaS companies scale recurring revenue with high-impact multichannel campaigns.
.png){kind=small}
