Before you get too far into planning your marketing strategy, you need to know how much money you’re willing to spend. Exactly how much.
That’s right, kids. It’s time to talk about your marketing budget. And while the idea of reading about budgeting may get you about as excited as a Benadryl and a documentary on paint drying, we’re going to try to make this fun.
In this post, we’ll cover how to calculate your marketing budget down to the dollar. We’ve even included a downloadable version of the marketing budget template we use in-house.
Let’s get to it.
1. Compare yourself to the competition
Before you do anything else to determine your marketing budget, take a few minutes to get some baseline information. You know who you’re competing against. What’s their marketing like?
For example, are they using email? Blog posts? Social media advertising? Pay-per-click (PPC) ads? Client video testimonials? Elaborate events, like movie premieres? And do they rely on an outside firm for marketing help or do they do it all themselves?
Email campaigns and blog posts are cheap. Events and PPC ads require a financial commitment. When you know what your competition is doing, you’ll have an idea of how much they spend. Not a dollar figure, but a general sense of their range.
That’s your financial benchmark. If the best-in-class MSPs in your area aren’t shy about dropping coin to get customers’ attention, then you’re likely going to need to do the same.
If you’re really serious about doing your homework, we recommend contacting Service Leadership Incorporated. They work specifically with MSPs to help increase marketing ROI and improve long-term performance.
2. Check your numbers
Now that you have a rough idea of what the competition is doing, take a look at your own financial reports. You can’t spend money you don’t have, even to grow your business. So determine how much money you can afford to allocate for your marketing budget.
On average, MSPs spend 3-5% of their annual gross revenue on marketing. Best-in-class MSPs spend 10% or more. If this is your first time taking a strategic approach to marketing, shoot for 3-5%.
3. Justify your budget
This is really just a review of part 2 of this series, which was all about identifying your marketing KPIs.
You should already know how many deals you need to close per month to hit your growth goals. Working backwards, you should also know how many proposals you’ll need to close those deals, how many appointments it takes to generate that many proposals, and how many leads you need to set that many appointments.
Your KPIs are the justification (and statistical anchor) for your marketing budget.
That’s important because you should never “just do marketing.” The best marketing practices are driven by data. If you want every dollar in your marketing budget to count, always tie your budget back to your KPIs.
4. Leverage your strengths
In addition to your KPIs, you need to start tracking some other numbers. Like, for example, the cost of lead acquisition and the cost of client acquisition.
When an MSP is new to marketing, we find that most of their previous growth has come from referrals. Referrals are great, in part because they’re so easy to close. You could literally show up in shorts with Taco Bell leftovers and close a referral deal while chewing with your mouth open. They’re that easy.
Closing from other leads (like email marketing leads) is significantly more challenging. So you need to track your closing ratios.
Here’s why. If your conversion rate is lower than 20%, you should seriously consider investing in higher-quality leads. For example, leads that come from PPC campaigns or events. The higher the quality of the lead, the higher the cost.
If there are changes you can make (to your sales process, for example) to bump up your closing ratio on lower-quality leads, do that. The best mix is lower-cost leads with higher closing ratios.
Don’t put all your eggs in one basket.
You may love the idea of PPC marketing. You may think it’s the best thing since vertically partitioned baked grain. (You know, sliced bread.) But even if you have incredible luck with PPC ads, they shouldn’t be your entire strategy.
Spread your marketing budget around. You need at least 3-4 tactics. That way, when one well dries up, you have other marketing sources still generating workable leads.
6. Budget for client experience
We also recommend setting aside some money for courting your very best prospects.
You should have some kind of system in place for ranking your leads based on size, potential revenue, influence and so on. The better the lead, the more you should be willing to spend to close that deal.
For example, one of our clients creates these massive architectural-style prints of the network configuration for their most promising leads. They even have the thing framed. It sets them back about $500 a pop, but when you’re talking about thousands in recurring monthly revenue, that’s nothing.
Here at TRIdigital, we give our best prospects a custom, one-of-a-kind drawing, complete with a certificate of authenticity. We call it The Gift of Art. When you calculate the amount of time it takes us to produce just one of these, the cost is significant. But it helps us create special connection with our most sought-after prospects.
Just ask yourself, what showcases how your relationship with a new client will be unique and different? Then find a creative, meaningful way to express that.
A word on market development funds
Market development funds (MDF) can really help fill out your marketing efforts. But don’t rely on them for determining your marketing budget.
Instead, calculate your marketing budget and then add MDF after they’re secured.
As our CXO Adrian Cue explains, “This shows potential partners that you’re dedicated to your own marketing efforts, regardless of whether or not you receive additional funding.” Demonstrating that kind of commitment is important.
When you’re asking for MDF from vendor partners, it’s also key to provide those partners with an action plan for how you’ll use that money. Include what you need to execute your plan, how you’ll pull it off, and your expected ROI.
When vendors have an accurate picture of how their investment benefits their company, they’re more likely to help you out.
Download our IT marketing budget template
Our marketing budget template makes it easy to track how you’re spending your marketing dollars. Simply fill in the sections in parentheses and ignore the sections that aren’t a part of your current plan. If you’re just getting started with your first marketing budget, this is an invaluable tool.
In our next post, we’ll start talking about what to do now that you have a marketing budget set.