There is never enough money and never enough resources in a business. Whether you work in a multinational corporation with billions of dollars to splash around, or a micro business with only a few staff, budgeting is always tough. How do you allocate this limited budget to greatest effect?
It pays to remember the process for forming a business strategy.
Work out where to play (which markets are you targeting, which are you ignoring, and how much money will you allocate to each market?).
Decide how to play (set the correct strategy for each product market, taking into account the maturity of buyers).
Recognise the likely level of expenditure in each of these maturity stages.
Allocate expenditure according to these priorities while also considering buyer maturity.
Businesses typically split budgets and resources between three major marketing streams:
Environmental Marketing (how you condition the market) – key activities include positioning your brand in the minds of the buyers, and influencing their perceptions of your brand.
Demand Generation (how you identify willing buyers) – this is how you fill your sales funnel by taking buyers on a journey. They progress from being untroubled about the problems you solve, to becoming troubled, then acquiring an interest in a solution, getting clarity on options and, finally, becoming engaged.
Channel Readiness (how you recruit, train, equip and enthuse your direct and indirect channels) – there is no point filling your sales funnel if you don’t have resources ready to progress buyers through it. Whether you sell through a direct sales force or through partners, a good portion of your budget will be consumed preparing your channel for battle.
In 2005, align.me and MarketingProfs.com released a study on sales and marketing alignment. The study’s insights into 1400 businesses in 84 countries provide an opportunity to influence budget strategies. There are only two rules to consider when allocating funds between the three aforementioned streams – first, plan to spend less than 25% of your budget on environmental marketing and, second, allocate more than 40% on demand generation.
These are only rules of thumb, of course, but the logic applies whether you are a multinational company or a start-up. Larger businesses can benchmark their settings on each of these decisions, while smaller ones benefit from being able to change their settings more rapidly.
However, for each stage of buyer maturity (using marketing luminary Geoffrey Moore’s Chasm Theory) there is a ‘correct’ strategy. Each strategy requires a different emphasis on environmental marketing, demand generation and channel readiness.
Our final task is to marry these concepts. To do so we factor in:
the product markets that are in, and out, and whether you are investing ahead of expected growth, holding firm, or milking an old market
the ideal strategy for each of these product markets
the type of expenditure that is required for each stage of the market (splitting between Environmental Marketing, Demand Generation and Channel Readiness)
the level of expenditure required to create alignment between sales and marketing.
It all adds up to a limited budget being well spent.