GuideHow marketing gets bought
Marketing budget as a share of revenue
Definition
Marketing spend expressed as a percentage of revenue, the form a board reaches for when it asks whether spend is reasonable. Figures will be quoted at you; I am not going to add one.
How it’s calculated
The share is an output. It falls out of your gross margin and your growth ambition, checked against the payback your balance sheet can carry, so another company’s share encodes their margins and their cost of capital. Build the budget forwards instead. Decide how many new customers the year must add. Multiply by your own CAC; that is the acquisition budget the ambition requires. Check it against payback: the months of contribution margin that recover one acquisition cost, and whether you can fund that much waiting at that volume. If the total is unaffordable, change the ambition or the assumptions in daylight. The share of revenue appears at the end, as a description of what you decided.
What to watch for
The share was set first and the plan written afterwards to spend it, so activity is sized to the money and no line runs from the budget to a customer number. A benchmark is being quoted from a company whose gross margin nobody in the room has compared with yours. The budget takes a mid-year cut while the customer target survives it, leaving a plan that assumes acquisition it no longer funds. Or the share is defended because it matches last year’s, with no check on what last year’s spend returned.
The question you ask
“How many customers does this budget assume we acquire, and at what cost each?”