Having worked at the crossroads of Marketing and Sales for over a decade, we know that business owners and stakeholders have one thing in common… the passion for acquiring dedicated consumers who share the same enthusiasm for their product or service as they do!
Unfortunately, the dream of new customers chasing us down to buy our product or service is just not a reality for the majority of companies today. The result is that many companies underestimate the cost they need to allocate to acquisition marketing. In fact, one of the top causes of start-up failure is inaccurately estimating the cost of acquisition marketing, and those expenses end up outweighing revenue earned from customer purchases. In other words, the company never makes it out of the red zone with their marketing efforts.
What exactly is acquisition marketing, anyway, and how will it help grow my business? Acquisition marketing is the expense it takes to find and earn new customers. From a sales and marketing perspective, a company’s profitability can be determined by looking at the difference between how much revenue is gained from customers, and the cost it takes to gain those customers’ business in the first place.
The truth is whether you’re a start-up company, a small company growing slowly but surely, or a larger company with a proven track record of marketing success – there’s real value in putting money into acquisition marketing. One reason is that the business marketplace has essentially moved online – almost 70% of B2B purchases are now web-based. At the same time, the Internet is becoming more and more saturated with new brands year after year. Now, this isn’t a bad thing – while B2B brand competition is high, Google says over 50% of smartphone users have discovered a new brand they like and would buy from while surfing the web.
But you might be wondering: exactly how much should I allocate to acquisition marketing, and on which channels should I focus? Well, we’re here to help walk you through this important decision:
How Much Should I Spend on Acquisition Marketing?
To think about this, first consider balancing paid and organic marketing strategies. While you might be successful in bringing in some organic traffic through SEO-efficient blog posts and articles, social media outreach, word of mouth, or other ways that don’t require allocated payment to attract web traffic, relying only on these methods usually won’t drive enough revenue as you would like. Usually, companies that are successful with organic marketing have been working at optimizing their keywords to rank on Google and other search engines for long periods of time, have performed many metric analyses, and/or have a pretty large brand following already.
On the other hand, paid marketing will allow you to target, reach, engage, and convert prospects quickly and reliably. Whereas organic marketing can be chancy and success isn’t guaranteed – with paid marketing you’ll be able to reach targeted audiences that are likely to take an interest in your product or service, and assure your calls-to-action will received on the other end.
The idea is to find a balance between the two strategies that works for your company. While paid marketing definitely has its advantages, be careful of over-relying on this as a source of revenue. It’s easy to see immediate results from paid ads and if you lean into this as a strategy too heavily, you can quickly drain your resources. Don’t underestimate the value of cost-free SEO strategy, even if its a lengthier process!
OK, so you understand the balance between organic and paid marketing, but how do you decide on an overall marketing budget that you can rely on for your company’s needs? It will depend on your industry, the size of your business, how long you’ve been around, and how well-known you are.
Most B2B industry experts – including the U.S. Small Business Administration, Forrester, and CMO – recommend budgeting between 5-13% of the company’s overall revenue (for the time period measured) if you bring in less than $5 million per year in revenue. More specifically, a recent CMO survey says that the marketing budget should be slightly different for companies selling B2B products vs. services – product marketing should land around 8% of company revenue, while service budgets should be closer to 6%. However, each year that CMO conducts a marketing report, business marketing budgets are consistently increasing.
Keep in mind that most marketing experts advise including the entirety of your marketing and sales expenses when calculating % of total revenue. That means – all paid marketing efforts, marketing analytics, internal marketing and/or sales training, and employee salaries.
Which Channels Should I Focus on?
Once you’ve decided on a marketing budget for a certain time period internally, you’ll want to figure out how to divvy up that budget across different marketing channels. There are more marketing channels to consider than ever before, which means the cost of marketing is getting more expensive. Trying to capitalize on each and every channel requires tons of time and money, and may not be feasible for every company. Since marketing is the key revenue driver for over 30% of companies in the U.S., it’s important to focus your efforts on worthwhile channels that bring you the highest return on investment (ROI). This will vary across particular industries and companies, depending on the intended audience.
If you’re just getting started, the best idea to determine worthwhile channels is to do your research on digital marketing trends in your industry to make a decision. According to Forrester, budgets for digital marketing are trending upward, and 70% of B2B marketers are planning to increase their spending on online advertising in the next year. This includes ads on social media, online publications, search engine marketing and optimization, Pay Per Click (PPC), and video ads.
Social media alone is expected to double or triple within the average marketing budget in the next year. Additionally, while content marketing usually accounts for 10% of an average marketing budget, Forrester expects that number to increase to 12% in the next few years. All in all, it’s reasonable for companies to expect an overall digital marketing budget of 13% or more in the next couple years to stay competitive and bring in traffic.
If you’re an established company, or have already been performing the above-mentioned marketing strategies for several years, the idea is to develop a forward-moving plan based on marketing performance by channel in the past. Track your lead count and cost per lead in each marketing channel, as well as which channels produced the highest conversion rates. Then, keep a record of which campaigns in each channel attracted the most traffic and conversions. When planning the quarters ahead, adjust your budget accordingly – in other words, decide on which channels and campaigns to ramp up, and which to dial down.
How Much Return Should I Expect to See?
At the very least, you need to earn back your annual marketing budget – plus change – to consider your marketing investment worthwhile. A good target ROI ratio for your annual marketing expenditures is 5:1 – meaning, aim to make back $5 for every $1 you spend. However, after you implement good analytics, you should always aim to increase the overall ROI for marketing as your company grows. If your ROI is 3:1 in the first year, make your goal 4:1 for the next year.
How Do I Calculate My Marketing ROI?
Most businesses calculate their return by using a metric called Customer Acquisition Cost (CAC) – which basically means the cost it required you to gain one customer on average. For B2B companies, sometimes it makes sense to calculate your Lead Acquisition Cost (LAC), and then consider your average close rate from there. Both methods will help you determine the value of your marketing efforts.
To start, take the total amount spent on marketing during your chosen time period. Divide it by the amount of leads, or customers, you earned (depending on how your company is measuring). The number you get is your average cost per lead/customer.
Generally, you want to factor in the following items:
Marketing budget over x amount of time: Are you measuring for the month, quarter, year? What was your marketing budget for that time period, total?
Lead Count: How many new leads did you bring in from your marketing efforts? Quick tip: moving forward, calculate your total lead count and well as leads by channel for a more comprehensive report.
Close Rate: What percentage of your leads did you convert to a sale?
Lead Value: Were the leads you received of high quality? In other words, did they have a genuine interest in your product or service, or have an intent to buy? Looking at your close rates should give insight into this.
Lifetime Value: Do you have repeat buyers or offer service contracts? Your acquisition cost will stay the same per customer, but if you can get that customer to spend more or stick around longer, your CAC will go down and you’ll see a higher ROI!
If you want to find your lead acquisition cost, divide your budget by the total number of leads (instead of new customers). Then, look at your conversion or close rate – how many of those leads actually ended up doing business with you. A close rate between 5-15% is typical for most businesses, depending on lead quality and sales excellence. If you’re on the higher end of that, congratulations, your lead value is probably high and you have a high-achieving sales team! If you’re at 5% or lower, it’s a good idea to focus marketing and lead generation efforts on lead quality for the next quarter or measurement period.
OK, now let’s walk through an example…
A B2B start-up company called “ABC Telecom Solutions” sells phone systems to businesses. They were founded in 2015, so they’ve been doing business for four years and have brought in $500,000 in revenue last year. Last year, their goal was to bring in higher value leads and boost their close rate, so they allocated substantial marketing budget to digital marketing. Let’s calculate their LAC:
Their marketing budget for last year was 12% of annual revenue = $60,000.
900 leads came through.
They closed 8% of those leads = 72 new customers
They can gather from their 8% close rate that their lead quality was about average.
So, the company’s LAC is almost $67 for this period. But their CAC was about $833. Well, what did each customer spend with the company last year (a look into their lifetime value)? If it was over $4,000, the company hit their target 5:1 ROI ratio. This particular company might now ask follow-up questions like: What is the average monthly subscription or payment for a customer with this company? The metrics here will vary depending on the specific ins-and-outs of the industry.
How Can I Boost the Value of my Marketing Efforts?
As marketers, sometimes we need to look beyond the CAC equation and think about the value of our marketing efforts more holistically. Calculating your exact ROI has a lot of value – it can help you discuss past achievements and form forward-looking numerical goals with your team. But at the same time, you want to think about how to time-manage and distribute your effort as you move forward and grow.
Here are some tips for boosting the overall health of your marketing efforts:
If you’re interested in finding out more about how 360Connect’s lead generation strategy can help you boost the ROI from your marketing efforts and help grow revenue, get in touch with us here. We generate true-intent, sales-ready leads across the U.S. so that we can cater to your specific geographic location and help you make the smartest business decision.