How to Run the Show & Formulas to Calculate Marketing Budgets

The Growth Report #46

Hey marketer,

As we are mid-season of The Growth Leadership Show podcast, I have little special episode planned with a personal hero of mine, Sahil Lavingia.

He is the founder of Gumroad, was a self-made millionaire by the time he was 19 when he sold his first company and on top of that was employee number two at Pinterest (and their first engineer!).

But what really impresses me about him, is his minimalist and unconventional approaches to business. For example, even though his company processes 500 million dollars of micro transactions, he has only 80 employees (and a lot of them contractors).

His philosophies on how to test products, do marketing, treat customers and building ecosystems are inspiring.

And he also says smart things on Twitter 🤓
(where he has 250k+ followers)

So I am beyond excited to sit down with him on December 8 and chat about the story and frameworks behind his new (fantastic) book “The Minimalist Entrepreneur”.

If you’d like to join live, drop me a note and I’ll invite you to our Zoom call. It’s gonna be small, cozy group and you get to ask questions at the end.

It’s on December 8 at 7pm CEST.

...

But now let’s turn our attention to….


...Today's topics

📈 Marketing:
Repost: Simple Formulas for Calculating Marketing Budgets

🧰 Tools of the Trade:
Articles, Tools and Inspiration for Marketers

⛑️ Reflections from the Trenches:
How to Run the Show


📈 Marketing

Repost: Simple Formulas for Calculating Marketing Budgets

This following article is a repost of the Growth Report newsletter that came out in June of 2020.

With the planning and budgeting for 2022 in full swing, this is a timely reminder. 💰

Following are two approaches on how to calculate your marketing budget:

The Percentage-Based Approach

Sirius Decisions benchmark data reported marketing budgets between 9-17% of revenue at startup ARR ranges (0-$50m ARR) and 7-12% at scale-up ($50m-$250m). Matt Sweezy from Salesforce did a good presentation on the five traits of leading organizations as well, where he identified over-investments in marketing as one of the major traits with a budget of 13-30% on (projected) gross revenue. It's important to mention that its different for every company depending on the appetite of the CEO/CFO and their understanding of marketing as a growth driver.

In my experience where you will land depends on a few factors:

  1. Growth objectives. Want more growth? Invest more in marketing

  2. Margins. Make more money? Invest more in marketing

  3. Tolerance for risk. Companies are all over the map here. Well-funded West coast companies in the US still often operate at a "growth at all costs" mentality and are willing to invest more in marketing. But for most of us, CFOs are providing guidance to "grow responsibly" meaning you are probably going to end up on the lower side of those ranges.

The Top-Down Approach

  1. Calculate the budget based on new revenue you're planning for the year.

  2. So let's say you want to add $10M in NEW revenue

  3. Divide $10M in NEW revenue by the ACV (average contract value aka what customers will pay you), that would give you the number of customers you need to acquire. Let's assume its $5,000, that would make 2000 new customers.

  4. Multiply 2,000 customers by your CAC (cost to acquire a customer) -- so let's say it costs $1500 to get a customer. That is $3M.

  5. That is the full budget for sales AND marketing. Marketing should be half of that -- 50% marketing, 50% sales. So the full marketing budget for the year would come to $1.5M.

Hope that was helpful!

I personally like the latter formula better, because it is thoughtful and forces you (and your CFO) to report on Cost per Lead and Customer Acquisition Cost.


🧰 Tools of the Trade:

Articles, Tools and Inspiration for Marketers

💬 On Corruption

"It is not power that corrupts but fear. Fear of losing power corrupts those who wield it and fear of the scourge of power corrupts those who are subject to it." — Noble Price Winner Auung San Suu Kyi

👨‍🎓 Marketing & Leadership Education

🤩 Brands and (digital) Products that caught my eye

  • Tolstoy - A "choose your own path" video solution for personalized messaging in your marketing.

  • BuiltWith - Find out what technologies your competitors or any other company is running on.

  • Cleanup Pictures - Remove any object, people, or text from pictures. Wow this is an impressive little tool.

📚 Interesting reads


⛑️ Reflections From the Trenches

How to Run the Show

I came across this brilliant essay from the Emmy-winning television producer Javier Grillo-Marxuach in which he compiled his best advice for other showrunners (as in producer of a television series or movie) into 11 laws of showrunning.

Substitute the word "showrunning" for any business you're running (and substitute your product wherever he refers to "scripts") and you have a manifesto on leadership.

Here are my top takeaways:

  • have a clear vision and be great at communicating it constantly to people who can execute in their field of expertise

  • the vision is your responsibility, take responsibility and don't outsource it to your people

  • empower people to express themselves within your vision

  • paint a path to success by defining problems and/or describing desired outcomes clearly

  • commit to decisions early and often to give people time to use their talents to expand upon the direction you provide

  • do not demand a final product at the idea stage, trust in your people to execute on ideas and give them time to do so

  • write out your vision for your business and any of its future products and publish as soon as possible

  • give feedback on your people's work as soon as possible

  • share your vision, be clear about what success looks like, and trust them to go out and bring it to life in your products for you

  • resist spending time in the sexy glamorous parts of the business by staying focused on the vision and delegating responsibility for execution

  • understand the difference between professional execution by your people and your subjective judgment of their final work

  • your team has different levels of experience, so don't have the same level of expectations and be more patient as a teacher with some

  • encourage and teach inexperienced people to build consensus for new ideas before they bring them to you

  • if someone on your team disagrees without providing solutions, coach this behavior out as soon as possible

  • make everyone responsible for the teaching of those less experienced than them

  • deliver good and bad news early and often to avoid secrets and surprises

  • never miss an opportunity to point out how another's work has made you look good

  • never throw one of your people under the bus: what is only a marginal issue for you, can cripple the career of another

If you lead people at any capacity in your life, read the full 25-page PDF.

It is time well invested.


That's it for this week.

Talk soon,

Sandro