Marketing budget planning that starts from the revenue you need

Why a percent of revenue budget keeps missing

Most companies set next year's marketing budget by habit. Someone takes last year's number, adds a bit, or applies a fixed share of revenue that a board member once said was normal. The result is a figure that has nothing to do with the goal. A company that wants to grow 50 percent and a company that wants to hold flat end up with the same budget, because they have the same revenue today.

The percent of revenue method also hides the questions that matter. It never asks how many deals marketing has to source, what a new customer costs in each channel, or how long it takes for that cost to come back. Without those answers you cannot tell whether the budget is too small to hit the target or so large that half of it is wasted on channels past the point of diminishing returns.

A target-driven budget flips the order. You start from the revenue the company has committed to, work out the pipeline that revenue needs, and only then price the pipeline. The budget becomes a consequence of the plan rather than a constraint someone guessed at in November.

The five inputs a revenue-based budget needs

You do not need a data warehouse to build this model. You need five numbers, and most finance teams already have them in a spreadsheet somewhere.

• Target revenue and current run-rate. The gap between them is the new revenue the year has to produce.
• Marketing share of new revenue. How much of that gap marketing is expected to source, as opposed to sales outbound, partners or expansion.
• Average deal size or order value. First-year contract value for B2B, average order value for ecommerce.
• Conversion rates. Lead to opportunity and opportunity win rate for B2B, session to order for ecommerce.
• Healthy cost per new customer. The program cost you can afford per customer, usually expressed as a share of first-year value.

A worked B2B SaaS budget with stated assumptions

Here is the model VirtualCmo runs by default for a B2B software company. The figures are assumptions, not promises, and you replace each one with your own the moment you connect your CRM.

Say the company runs at 6 million USD of annual recurring revenue and the board has signed off on 8.4 million, so the year has to produce 2.4 million in new revenue. Assume marketing sources 60 percent of it, which is 1.44 million USD. With a first-year deal of 24,000 USD, that is 60 new customers.

At a 22 percent win rate, 60 deals need about 273 opportunities. At a 12 percent lead to opportunity rate, 273 opportunities need roughly 2,275 qualified leads, about 190 a month. If a healthy program costs around 25 percent of first-year deal value per new customer, each customer may cost 6,000 USD, and 60 customers put the annual budget at 360,000 USD, or 30,000 USD a month.

Compare that with the habit. At a flat 8 percent of current revenue the same company would budget 480,000 USD, a third more than the plan needs, and nobody could say what the extra 120,000 USD was meant to buy. A different company with a steeper target would find the habit leaves it short. Either way, the math tells you something the percentage cannot.

Splitting the budget by channel

Once the total is set, it has to be divided. VirtualCmo starts B2B SaaS companies on the split below and moves away from it as real cost per customer comes in from each channel. The starting point is deliberately balanced between demand capture (search), demand creation (LinkedIn, content, Meta) and owned channels that compound (SEO, email).

Rebalancing weekly from CAC, ROAS and payback

A budget written once a year is out of date by February. Channel costs move, a competitor starts bidding on your name, a campaign that looked strong in the first month fades. The fix is a weekly review against three numbers per channel, which is exactly what a marketing analytics dashboard should put in front of you.

Customer acquisition cost (CAC) tells you what a new customer costs in each channel. Return on ad spend (ROAS) tells ecommerce teams how much revenue each dollar of media returns. Payback tells you how many months of gross margin it takes to earn back the acquisition cost. When one channel's CAC drifts well above the plan for two weeks running, money moves to the channel with the best payback that still has room to absorb it.

VirtualCmo does this as a recommendation, not a surprise. You see the reason, the expected impact on pipeline, the risk and the effort, then press Approve, Auto-execute, Dismiss or Ask why. A typical example is cutting Meta prospecting 22 percent and raising branded search by the same amount. The rule set behind those calls is spelled out in performance marketing management.

How to build your budget in six steps

1. 1 Write down the revenue target and the current run-rate, and agree with finance how much of the gap marketing owns.
2. 2 Pull last year's deal size, win rate and lead to opportunity rate from the CRM. If you have no history, use the assumptions above and mark them as such.
3. 3 Work backwards from new revenue to deals, opportunities and leads per month, then multiply new customers by an affordable cost per customer to get the total.
4. 4 Split the total across channels with a starting allocation, and set a target CAC and payback band for each one.
5. 5 Phase the budget across the year. Ramp channels that take months to build, such as SEO and content, earlier than the revenue they produce.
6. 6 Review weekly. Move money from channels outside their band to channels inside it, and log every change with the reason so the next review starts from facts.

What VirtualCmo does with your budget and what it leaves to you

VirtualCmo turns the revenue target into the pipeline model, the budget total, the channel split and a quarterly and monthly plan. It then scores itself weekly against the target and re-plans automatically when a KPI misses its band two weeks running. On Growth it can auto-execute budget moves up to 10 percent of a channel; on Scale you set your own guardrails, from maximum shift per channel to spend caps and approval thresholds. Approve mode is always the default.

It does not set the revenue target for you, negotiate media contracts or decide whether to hire a demand generation manager. It also cannot price a channel it has never seen data for, so a brand new channel starts as a small test with a fixed cap. If you want to see where the model fits in a full plan, SaaS marketing strategy covers the steps before the budget.

Frequently asked questions