This sponsored post is produced by Capterra.
Have you ever had to beg for more room in your marketing budget? Or perhaps your marketing team begged you for more room in their budget? “It’s not in the budget” is the most common rebuttal SaaS marketers hear from prospects. So why then do so many continue to give this excuse when it comes to their own lead gen strategies?
While an unlimited marketing budget may sound extreme, what most marketers don’t realize is that — when done correctly — budgeting for digital marketing should be less like spending and more like investing. It can — and should — pay for itself. What follows is a guide to explain the fundamental relationship between lead generation and revenue generation, and how to convince your boss to give you an unlimited digital marketing budget.
Set budget constraints, not limits
Marketers wanting to test out new lead generation channels often want just that: a test. And there’s nothing wrong with setting some parameters to limit the scope of a campaign to evaluate its effectiveness before diving all-in. You can mitigate the risk of a new marketing channel in two ways:
- Dedicate a small amount of spend to the test campaign, or;
- Run the test campaign for a short period of time.
Once the test is complete, you should have a solid idea of the quantity and quality of the traffic you’ll get for that amount of spend and/or time. And you should have an especially good idea of whether the channel is worth scaling if it’s a pay-for-performance channel, such as those that charge a cost per impression (CPM), cost per click (CPC), or cost per lead (CPL).
Three critical metrics
How do you know if your test campaign is worth scaling? By intimately understanding three metrics to calculate the optimal bids for your campaigns:
- Conversion Rate: What percentage of your web traffic converts into a lead? Note that a “conversion” may mean something different for every website, but in the SaaS industry, it’s usually someone who signs up for a free trial, free demo, or requests to speak to sales. Conversion rates may also differ depending on the channel. Someone coming from a Google search might be twice as likely to convert as someone coming from Twitter, so it’s worth measuring a conversion rate for each channel separately.
- Close Rate: What percentage of those leads go on to become customers? In other words, what percentage of the free trial or free demo “conversions” does your sales team actually upgrade to a paying customer?
- Target CPA: What are you willing to spend to acquire a new customer? Often, this decision involves balancing the profitability of the campaign with revenue growth. Usually, you can determine your target CPA as a percentage of the average revenue you get from a customer. So if a customer spends $100/month on your software for two years on average, you make $2,400 in revenue from each customer. If you’re willing to spend 10 percent of that to acquire a new customer, then your target CPA would be $240.
Apply a simple bidding formula
Once you’ve worked out these figures, then you’re just a simple formula away from an unlimited budget. The key is to bid appropriately so that you make more money with every click, impression, or lead. Here’s how:
With a CPC campaign, the formula for your maximum bid is:
CPC Bid = Target CPA x Close Rate x Conversion Rate
For a CPM campaign (cost per 1,000 impressions), it’s only a slight modification. During your test phase, you’ll learn the average click-through-rate (CTR) on your ads. Simply multiply your CPC bid by the average CTR to get a value per impression, and then multiply that by 1,000:
CPM Bid = Target CPA x Close Rate x Conversion Rate x CTR x 1000
For a CPL campaign, you can eliminate the CTR and conversion rate because you’re only paying once a lead converts. So in that case, your target bid is:
CPL Bid = Target CPA x Close Rate
With these target bids in place, you can set your campaign to unlimited, and rest assured that as your campaign takes off, so will your software sales.
When you need a campaign limit
That being said, there are a few legitimate reasons why you may need to keep a temporary limit on your campaign:
- Your sales team can’t handle the onslaught of leads. In this case, you may want to limit your spending until you can hire more sales people or streamline your sales process.
- Your sales cycle is frustratingly long. Taking a year to convert a web lead into a sale will likely land your company low on cash in the interim. Consider setting a spending limit until your revenue catches up with your spend.
- You’re investing in brand awareness campaigns that you can’t measure through direct web visits. It may take some time to figure out what percentage of people who see your television ad, YouTube video, or print ad later come to your website (and many never can figure it out). In these cases, you need to have a very solid attribution model to justify an unlimited budget.
While any new marketing venture can be intimidating, when it comes to online lead gen, running a limited test is a great way to quickly determine whether a new channel can be effective. Once you demonstrate that a channel is worthwhile, think in terms of constraints as opposed to a strict budget since the campaign will fund itself. If a channel can deliver within your constraints, then the amount you would be willing to spend — in theory — should be unlimited. Do your math and do your research before launching a limitless campaign. Knowing your three key metrics will help you set educated constraints on your campaign and optimize the traffic you receive for your bid.
Want more tips on optimizing your software sales funnel? Download Capterra’s free ebook: The Software Marketer’s Guide to B2B Lead Gen.
Michael Ortner is the founder and CEO of Capterra, a free web service that has been helping businesses find the right B2B software since 1999. He writes regularly about entrepreneurship and company culture for his blog, Knocking Down Doors, and also consults software marketers on sales and marketing best practices on Capterra’s B2B Marketing blog.
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