Introduction to setting a B2B marketing budget

From conversations with new Marketing Directors of B2B businesses over the years, one of the challenges that most commonly strikes fear into their hearts is setting the annual marketing budget. On the whole, they’ve been excellent marketers who know their craft inside and out, and solid strategic thinkers who know what they want to achieve and how they want to get there. They also tend to have great experience in budgeting for, and planning many of the individual line items of a marketing budget. However, when suddenly faced with setting the entire budget for the first time, it can be deeply daunting.

The good news is, there is no magic trick to setting a marketing budget that every Marketing Director other than you knows. It’s a mixture of art and science and, despite what many consultants peddle about specific general rules and formulae to reach a golden number, it varies a lot by individual company. Not just by your sector, size, structure and growth stage, but, vitally, by corporate and marketing strategy.

In this primer, we’ve laid out a basic process to support you with the structure you need to plan your first B2B marketing budget.

How to set a B2B marketing budget

1) Understand your business and your market

It sounds obvious, but you can’t make much in the way of informed decisions on strategy and budget if you don’t have a clear understanding of your business and market. This includes knowing your target audience, their pain points, and how your product or service solves their problems. It's also essential to have a clear understanding of your competitors, what they are doing, and how you can differentiate yourself from them.

Once you have a good understanding of your business and market, you will be in a position to make informed decisions on your strategy, and it’s your strategy that will ultimately determine your budget allocation.

2) Define Your Marketing Strategy

We’re not going to dig into how to set a marketing strategy in detail here- that is certainly a topic deserving of its own primer (and then some). However, your marketing strategy should have a clear diagnosis of the challenges you are setting out to meet, lay out your guiding policies for meeting those challenges, and have a high-level outline of a plan to deliver this.

There can be a bit of a ‘chicken and egg’ dynamic to strategy and budget. The ambition of a strategy may need to be tempered by budgetary constraints, whilst the plan and budget required to execute a strategy depends on what that strategy is. However, it is important to lead with strategy- not just from the point of view of being clear-minded about achieving your goals, but also from the political point of view of securing the budget you need.

3) Determine your marketing budget

Every company will have different budget allocation procedures, however, a key part of establishing yourself as a strategic marketing leader is entering this discussion as early as possible for your situation.

There are various ways to approach setting a marketing budget, from the financially rigorous to the seemingly random. It is also a perennial and oft-asked question as to how much is the right amount for a B2B marketing budget. In practice, there is not a single right answer- the appropriate budget will vary from company to company. However, below are three commonly used methods to get to a sensible figure:

Percentage of revenue: For established B2B businesses, once you remove outliers, the marketing budget will typically be around 5% of gross target revenue or around 10% of the annual budget. This figure will include everything from headcount to advertising budget, to events and tools/technology. It’s important to note that this does vary significantly by sector (for example software businesses are typically higher, sometimes at 15%+, and distributors are usually lower, down at about 2-3%) and by growth stage and ambition (a scale-up business will typically need to invest a lot more to achieve their goals)
ROI Calculation: To do this, you establish how much revenue you predict to deliver as marketing originated and contributed. You then weight this based on your understanding and predictions of conversion rates and contribution ratios to reach a target revenue figure. From there you can set a marketing ROI target. By taking the revenue figure and dividing it by the ROI figure you reach a target marketing budget.
Rule of 5: When planning new product launches and GTM (go to market), many use a method known as ‘the rule of 5’. You take your five-year revenue goal for the product and multiply it by 5%. This will give you an estimate of your budget for launching and year one marketing spend.

4) Allocate Your Budget

Once you’ve set the overall budget, you need to allocate it. How you approach allocating your budget will depend to some extent on if you are zero-sum budgeting or have some baseline commitments that can’t be changed, however, it is vital that you allocate it to deliver on your strategy. Your budget allocation is one of the most important variables in determining whether you can deliver on your strategy or not and so it is important that it’s based on what you want to achieve, rather than just on what is typical.

One of the first allocation decisions is how to split your budget between long-term brand building and short-term sales activation. While there's no hard and fast rule, based on Binet and Fields' often-cited research, a typical split is 60% for brand building and 40% for sales activation. However, this is firstly concerned specifically with advertising spend, and secondly, it is an average. The right split for you will depend on your company's growth phase, industry, market dynamics, and strategy.

Once you’ve allocated the budget to brand and activation you can distribute it across the specific areas you will invest in. Whilst again recognising that there is no hard and fast rule, and as what everyone is looking for is an example, a realistic breakdown for a B2B software business might be:

Campaign planning and content creation: 50%
Paid advertising: 30%
Software and tools: 10%
Events: 10%

Within the above, headcount spend is allocated to the relevant area of responsibility, and overall strategic and leadership spend distributed across the budget.

Once you have got your budget broken down in these ways, aligned with your strategy, you can allocate a specific budget to activities as you require. Different Marketing Directors take different approaches to the level of depth of budgeting in their plans. Some go to great depth with highly specific budgeting, whereas others keep their allocations at a higher level. There can be a benefit in keeping budget allocations relatively high level in order to afford greater flexibility to adapt your plans in the face of changing needs and market conditions.

Conclusion

Setting a B2B marketing budget is no doubt a complex task. However, it is very difficult to overestimate its impact on the execution of your strategy. Whilst complex, by following the structure we’ve laid out in this primer, you can be confident that the budget and allocation you land on will be right for your needs. Of course, there are industry standards, and, for most Marketing Directors, if you went to the Board asking for 50% of revenue as a marketing budget, of which you planned to spend 90% on paid brand advertising, you’d likely be on the lookout for a new job pretty quickly. But within quite broad parameters of what is sensible, there is a great degree of flexibility.

If you need support on how your budget supports your strategy or want to bounce any ideas related to it, please feel free to get in touch via the form below.

Primer on Setting a B2B Marketing Budget