Budgets Based on ROI
To sell my budget, I typically use historical data, industry ratios and most especially a scratch budget built up from expected expense and return on investment. The following are just a few examples of budget line items built from scratch based on expected return.
Objective: Recruit more resellers.
Assumptions: Based on historical averages, new resellers average over $100k in revenue their first year.
Direct Response Reseller Campaign
- 2,000 targeted locations at a total cost of $8k (for the design, printing, and postage). Reseller database list – $5k. Total expense = $13k.
- ROI: 2,000 x 5% expected response = 100 leads x 10% close ratio = 10 new resellers. At $100k sold per reseller during their 1st year, the ROI = $1 million
Event Marketing Reseller Campaign
- Reseller Roadshow going to 10 cities at a cost of $80k each, less contribution from participating alliances (they paid for most of the events). Our expense – $25
- ROI: 10 cities x 25 resellers attending each event = 250 resellers. At a projected 10% conversion rate, we expect to sign up 25 new resellers who would sell the average $100k their first year for a total return of $2.5 million.
The above examples obviously show terrific returns for the money.
Click here to download a PowerPoint that shows a sample ROI-based budget (a version that I made generic from an actual budget submission–I got all that I asked for).
Click here to download a simple Excel budget template.
Advertising End User Campaign
Objective: Launch two new products. The following are our advertising expenditures and expected ROI.
Assumptions: The assumptions are built into the graph. We currently get 30 leads per publication, we are only calculating 10 leads per publication for the graph. $20k is the avg historical sale price (software, plus maintenance, etc.). 15% is our avg close-ratio, etc.).
The previous examples show how to set up a scratch budget based on expenses and expected return on investment for every promotional activity. By the way, some items are harder to calculate a solid return in revenue. These items use ratios that help calculate the hard dollar value. For example, the ROI for PR is calculated using the MQQ Analysis to get a $ return amount.
This exercise also helps you determine which items to cut from your budget, since you will start with those generating the lowest return on investment (within reason – you obviously have to participate in some demand generation activities with end-users (even if the ROI is lower than the activities with resellers), since you must generate leads for your resellers (or they won’t hit their expected $100k/year revenue targets).