How much do you need to spend on marketing and sales to hit your targets?

Forecasting is a fun challenge. Its filled with assumptions, guesses, and statistics (lies?). But no one can deny the importance of forecasting in new product investment and sales planning. As a product manager, its one of the fundamental activities that needs to be owned by you. So how do you figure how much you can sell next year for you product offerings? You could make guesses at salesperson efficiency, or figure out how many people you can reach online for direct sales channels and guess at a 1% conversion rate.

A method I really like is working backwards from how much your competitors are spending in marketing and sales relative to their total revenue from products. For instance, let’s say your competitors spend 40% of their revenues on marketing/sales. Assume that is your new customer acquisition cost for your product. Now, assuming you’ve figured out how many of your product units you need to sell to match your company’s expected ROI, you’ve got the basis for how much you need to spend in marketing to get there, or how hard your marketing dollars could reasonably be expected to work after good tactical decisions are made.

i.e. 50 target units for 30% ROI is the target, $400 customer acquisition costs leads to $20K needed for marketing to hit the units target

Now work that backwards to figure out what your achievable market share is for the next year (assuming you have some idea what the demand looks like for the next year)…and extrapolate for growth to move towards a more realistic total product lifetime market share target.

Advertisements

Jason is an technical business professional who has deep hands-on technical experience as a software engineer and architect and has leveraged this experience to transition from project leadership into product management. He holds a MS in Computer Science from Northeastern University and an MBA from Babson College. He is continuously striving to learn and experience new challenges.

Posted in Product Management

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: