Jerry Goldstein, vice president of WMA

Last month, in my article titled, “How Much Should You Spend On Marketing” explored sales and marketing budgeting benchmarks based on an analysis of 2008 financial data from 32 publicly-held FinTech companies.  This analysis revealed that, on average, 22% of their revenues were budgeted for sales and marketing.  While this may not be the magic number for every small-to-mid sized technology company, it is still a necessary management exercise to determine how much should be allocated to specific programs.

Most companies allocate budgets as a percent of revenue, but regardless of percentage, it is important to allocate funds to achieve optimum results for the investment.  There is, however, never enough to do everything you would like to do, or that would benefit the company.  So, whatever the overall amount, what part of the total should go into sales versus other marketing initiatives? How much should go to marketing programs versus staff?  And then, how much should be directed to “traditional” marketing versus the newer digital marketing media?

Before budgeting, a productive exercise is to clearly define the roles of sales and marketing.  These include:

1.    Creating awareness
2.    Building the brand and establishing credibility
3.    Prospecting
4.    Closing the sale
5.    Validating the value (for future growth)

The Devil is in the Allocation
One of the biggest and most frequent budgeting mistakes is unwise allocation of resources.  An effective sales program is essential, but its primary role is to close sales.  It makes little business sense for a new or unknown company to fund a cross-country cold call to make a “prospect” aware of the company and its products.  Likewise, generating leads without an effective follow-up program is a sad waste of resources.

The ideal program is one that skillfully balances marketing initiatives to fit the unique characteristics and sales cycle of the marketplace it serves.  In financial technology marketing this means building awareness and credibility; being visible (both traditionally and digitally) whenever a suspect turns into a prospect; skillfully navigating the closing of the sale; and continually building the brand for competitive reasons and long-term growth.

Traditional marketing initiatives include public relations, media advertising, sales collateral, events (such as trade shows) and direct marketing.  A new layer of marketing initiatives that can add even more complexity to budgeting is digital marketing, which includes such elements as your Web site, Web site optimization, e-marketing and communications such as e-newsletters and e-mail campaigns and social media.

International Data Corporation (IDC) conducted a study of more than 100 business-to-business technology companies to determine typical ratios for marketing programs.  The IDC study provides useful benchmarks for larger companies. Our agency has examined the IDC numbers and projected the ideal budget for smaller organizations with revenues between $5 and $10 million.

For companies of this size, a good starting benchmark is 25% to 30% of revenues devoted to sales and marketing, with sales receiving two-thirds of this budget and marketing one-third. Of the overall marketing budget, companies should invest the majority, 70% to 75%, in programs that create awareness, build the brand and generate prospects.

Our recommended allocation of the marketing program budget is:

Every sales and marketing initiative has a unique role to play in a successful company’s business plan and should not be dismissed or trivialized. To recognize this and allocate available resources skillfully is essential to a successful business plan.

This article was also posted online at fintechmarketing.com.