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. 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.
Downloads
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. Following is 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 maintenence, etc.). 15% is our avg close ratio, etc.).
|
Activity
|
Total Ad
Placements
|
Expected # of
Leads (10 per pub)
|
Close
Ratio %
|
Avg $ Rev
Per Sale
|
Revenue $
|
|
Ad
|
60
|
600
|
15%
|
20k
|
1.800k
|
|
For an expense of $416k, we expect to obtain $1.8 million in revenue.
|
|
The previous examples show how to setup 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).
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